Why You Should Read Those Boring 10-K Filings
Differences from one year to another contain useful information for predicting future earnings.
It’s all in the fine print.
Photographer: Marina Oliphant/Fairfax Media via Getty Images
What happens when publicly traded companies issue their annual 10-K reports? Empirical evidence suggests that the stock market pays immediate attention to the tables, but less to the text. Yet the information in the text eventually is reflected in stock prices. In other words, for a significant period of time, price-relevant information about public companies is effectively hiding in plain sight.
Over the past two decades, the amount of text included in 10-Ks has grown substantially. For example, for the typical company, the number of words quadrupled, to more than 60,000 in 2017 from about 15,000 in 1995. Over roughly the same period, the amount of boilerplate and repetition increased; for the median firm, redundant sentences also quadrupled. Finally, the text has become more consistent from year to year, as the share that changed from one report to the next shrank.