An Evaluation of SEC 10-K Charts

Abstract

This project measured the effectiveness of charts in SEC 10-K filings. Amazon Mechanical Turk and business students participated in the online experiment. The first half of the study asked participants to interpret five charts rarely found in 10-K filings, including combo charts, scatterplots, stacked bars, relative waterfall charts, and absolute waterfall charts. While participants were successful with combo charts, stacked bars, and absolute waterfalls, half were unable to interpret a scatterplot, and only a handful understood  relative  waterfalls.  The second half of the experiment tested the effects of the three most common design flaws found in 10-K charts. Users were influenced by each of the three flaws: line charts using a non-zero vertical axis, bar charts using an unlabeled non-zero vertical axis, and pie charts using a 3-D perspective. Accounting students should be better trained in deceptive chart designs, and companies should improve their 10-K charts.