  Aghamolla and Smith (2023) make a significant contribution to enhancing our
understanding of how managers choose financial reporting complexity. I outline
the key assumptions and implications of the theory, and discuss two empirical
implications: (1) a U-shaped relationship between complexity and returns, and
(2) a negative association between complexity and investor sophistication.
However, the robust equilibrium also implies a counterfactual positive market
response to complexity. I develop a simplified approach in which simple
disclosures indicate positive surprises, and show that this implies greater
investor skepticism toward complexity and a positive association between
investor sophistication and complexity. More work is needed to understand
complexity as an interaction of reporting and economic transactions, rather
than solely as a reporting phenomenon.
