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Can sell-side analysts’ experience, expertise and qualifications help mitigate the adverse effects of accounting reporting complexity?

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Listed:
  • Rani Hoitash

    (Bentley University)

  • Udi Hoitash

    (Northeastern University)

  • Ari Yezegel

    (Bentley University)

Abstract

We examine the relation between accounting reporting complexity and analysts’ performance and whether analysts’ qualifications, experience, and expertise in specific financial domains help them more effectively process complex information. We document an inverse relation between complexity and analysts’ performance. Further, we show that analysts’ firm-specific experience, industry focus, and CFA certification alleviate some of the adverse effects of complexity, whereas analysts’ general experience does not appear to do so. Using an XBRL-based approach, we also develop new measures of analysts’ expertise and find that expertise in the areas of fair value, derivatives and pension are more valuable than other analyst characteristics in attenuating the negative effects of complexity arising from transactions and events in these areas. Overall, this study underscores the importance of analyst characteristics and the need to simplify the complex disclosures in the notes to the financial statements.

Suggested Citation

  • Rani Hoitash & Udi Hoitash & Ari Yezegel, 2021. "Can sell-side analysts’ experience, expertise and qualifications help mitigate the adverse effects of accounting reporting complexity?," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 859-897, October.
    • Handle: RePEc:kap:rqfnac:v:57:y:2021:i:3:d:10.1007_s11156-021-00963-8
    DOI: 10.1007/s11156-021-00963-8
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    More about this item

    Keywords

    XBRL; Complexity; Financial analysts’ performance; Financial analysts’ expertise; Recognition versus disclosure;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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