10-K Filing Length and M&A Returns

This article explores the relationship between 10-K filing length and M&A efficiency. We posit two effects: 1) an “information” effect, where lengthier 10-K filings contain more information about the target, and thus the acquirer can more accurately assess the benefits of the transaction, and, conversely, 2) a “complexity” effect, where lengthier 10-K filings are overly complex, and thus the acquirer faces greater difficulty in extracting meaningful information about the target. On average, we find that the former dominates the latter. This result is robust to controlling for different measures of textual complexity, and for the length of time the acquirer had access to private information about the target. In subsequent analyses, we find stronger results when less private information about the target is available to the acquirer, and that the relationship between 10-K filing length and M&A efficiency takes the form of an inverted “J-shape,” suggesting a non-linear relationship between 10-K filing length and M&A efficiency.