“Limited Attention: Implications for Financial Reporting” – by Mr. Jinzhi Lu
Mr. Jinzhi Lu
Ph.D. Candidate in Accounting
Booth School of Business
The University of Chicago
I develop a model to study the implications of limited attention on financial reporting. I first shed light on a fundamental trade-off between disclosing a summary versus disclosing details: although a summary contains less information about fundamentals than details, it is easier to process. Moreover, I find that when investors’ decisions are complements, reporting details together with a summary does not always dominate reporting a summary alone. The main reason for this surprising result is that when investors care about the decisions of others, they are induced to process details, even if doing so is very costly. By uncovering a potential cost of reporting details, my paper contributes a novel insight into the consequence of providing detailed information, an issue that is currently being considered by the FASB in its performance disaggregation project.