Limited Attention: Implications for Financial Reporting

I develop a theory to study the consequence of providing more detailed information to rationally inattentive investors. 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.