The Association between Reporting Complexity in the Statement of Cash Flows and the Decision Usefulness of Cash Flow Information

SYNOPSIS

For a broad sample of SEC registrants during 2010–2024, we find that reporting complexity linked to possibly inefficient aggregation and disaggregation in the Statement of Cash Flows (SCF) is associated with decreased decision usefulness of SCF information. We measure SCF reporting complexity as the number of monetary XBRL tags on the face of the SCF (Itemization Complexity) and the percent of SCF lines whose wording indicates the amount results from combining items (Aggregation Complexity). Controlling for business complexity and balance sheet and income statement reporting complexity, we find that both SCF reporting complexity measures are generally linked to diminished decision usefulness for analysts (using forecast errors and dispersion), and for investors (using valuation relevance of cash flows). These results vary across the three SCF sections and apply to both financial and nonfinancial firms. Our results provide new evidence about complexity in the presentation of cash flow information.

Data Availability: Data are available from the public sources cited in the text.

JEL Classifications: M41; M48; G15.