Abstract
Recent SEC regulations require that qualified hedge fund advisers provide their investors with narrative disclosures of their business and operations. We find that 40% of these disclosures omit or de-emphasize information regarding advisers' operational and investment risks when compared to other sources of public information. Funds with such “inconsistencies” are associated with predictably lower fund performance but do not differ in their fund flows, flow-performance relation, ownership structure, or management fees. These results are consistent with investors being subject to limited strategic thinking, which prevents them from fully unraveling the implications of strategic omissions. This, in turn, contributes to advisers' successful use of discretion to de-emphasize information with adverse performance implications. Our findings suggest that information processing frictions can facilitate nondisclosure, even in markets with sophisticated investors.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 923-978 |
| Number of pages | 56 |
| Journal | Journal of Accounting Research |
| Volume | 64 |
| Issue number | 2 |
| DOIs | |
| State | Published - May 2026 |
Bibliographical note
Publisher Copyright:© 2025 The Author(s). Journal of Accounting Research published by Wiley Periodicals LLC on behalf of The Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 10 Reduced Inequalities
Keywords
- enforcement
- financial regulation
- hedge funds
- inconsistent disclosure
- limited strategic thinking
- sophisticated investors
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