Effect of firm complexity on forecasting price efficiency

Utilizing a sample of US firms spanning 1996–2021, our study presents robust evidence indicating that the stock prices of complex firms demonstrate improved forecasting price efficiency. Our analyses further uncover decreased accruals and frequent management forecasts as potential mechanisms through which complex firms enhance forecasting price efficiency. Additionally, we observe that certain preexisting conditions, such as firms’ exposure to litigation and environmental penalties, and the presence of Big 4 auditors, increase the likelihood of complex firms improving the information content of their stock prices. Overall, our findings strongly suggest that complex firms increase their efforts to ensure informative stocks.