information.Inthesecond,theinformationmaybeavailable,
but the firm itself is so complex (either because of its
organizationalstructureorbecauseofitsbusinessinterests)
that valuing it becomes difficult to do.
Byseparatingthetwocomplexityfactors,wecanalreadysee
thatincreasingandtighteningdisclosurelawsmayreducethe
firstproblem,thoughregulatorshavetoweighthebenefitsof
requiringmoredisclosureagainstthecostsofcreatingmore
complicatedfinancialstatements,butregulationcandolittle
about thesecond. In this chapter, we consider complexity
from bothsources, thesources forthecomplexity,and the
motivations of companies that deliberately create this
complexity.
SOURCES OF COMPLEXITY
Using the broad definition of complexity laid out in the
preceding section, we can start looking at the sources of
complexity. Some complexitycanbe attributed to external
forces—regulatory authorities and accounting standards
boards—but most canbetraced backto thefirm.In other
words, firms with complex and difficult-to-use financial
statementshavenoonetoblamebutthemselvesformostof
the complexity.
Regulatory Framework
Sincewedefinedcomplexitytoincludeboththeabsenceof
relevant information and the presence of extraneous
information,someoftheresponsibilityforcomplexityhasto
be borne by the regulatory authorities governing financial
disclosure. The financial statements of firms in many