Research / BFI Working PaperApr 26, 2023

Bloated Disclosures: Can ChatGPT Help Investors Process Information?

Generative AI tools such as ChatGPT can fundamentally change the way investors process information. We probe the economic usefulness of these tools in summarizing complex cor-porate disclosures using the stock market as a laboratory. The unconstrained summaries are remarkably shorter compared to the originals, whereas their information content is amplified. When a document has a positive (negative) sentiment, its summary becomes more positive (negative). Importantly, the summaries are more effective at explaining stock market reac-tions to the disclosed information. Motivated by these findings, we propose a measure of information “bloat.” We show that bloated disclosure is associated with adverse capital mar-ket consequences, such as lower price efficiency and higher information asymmetry. Finally, we show that the model is effective at constructing targeted summaries that identify firms’ (non-)financial performance. Collectively, our results indicate that generative AI adds consid-erable value for investors with information processing constraints.

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