Economics of Information Search and Financial Misreporting

Jung Min Kim*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


I examine how investors’ search for different types of information affects managers’ reporting decisions. I distinguish investors’ search for information about firm fundamentals (“fundamental search”) from their search for information about managers’ incentives (“incentive search”). Based on a parsimonious model of misreporting, I predict that fundamental search reduces the earnings response coefficient, which reduces managers’ benefits from misreporting, resulting in less misreporting. In contrast, incentive search increases the earnings response coefficient, which increases the benefits from misreporting, resulting in more misreporting. I test these predictions using an empirical technique that classifies EDGAR downloads as fundamental search or incentive search. Consistent with my theoretical predictions, I find that fundamental (incentive) search is negatively (positively) related to the earnings response coefficients and intentional restatements. I confirm my findings in two distinct empirical settings where the costs of information search exogenously changed: the adoption of XBRL and the electronic filing mandate of Form 4s. Collectively, the results show that investors’ information demand can shape managers’ reporting decisions, and its effects can vary depending on the type of information investors search for.

Original languageEnglish (US)
Pages (from-to)1007-1065
Number of pages59
JournalJournal of Accounting Research
Issue number3
StatePublished - Jun 2024


  • fundamentals
  • incentives
  • information search
  • misreporting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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