Extensive evidence suggests that managers strategically choose the complexity of their descriptive disclosures. However, their motives in doing so appear mixed, as complex disclosures are used to obfuscate in some cases and to provide information in others. Building on these observations, we first identify a novel stylized fact: disclosure complexity is non-monotonic in firm performance. We develop a model of disclosure complexity that incorporates the dual roles of complexity and can explain this stylized fact. In the model, a manager discloses to investors of heterogeneous sophistication and can adjust the complexity of the disclosure to either provide more precise information or to obfuscate. When the firm's investor base is largely unsophisticated, the manager issues a complex disclosure only upon observing negative news. In contrast, when the firm's investor base is more sophisticated, the manager issues a complex disclosure upon observing either highly positive or negative news. As a result, the market may react more positively to complex information releases than to simple releases, complex disclosures generate heightened return volatility, and firms with more inherently complex information are more likely to use their discretion to simplify their disclosures.

This study investigates the real effects of management communication, specifically of forecasts or earnings guidance , on investment. Managers can signal the strength of their projects through accuracy in their earnings guidance. This leads less accurate managers to distort their investments; the equilibrium investment strategy involves over‐investment when earnings exceed the forecast and under‐investment when earnings fall short. Moreover, we find that managers are pessimistic in their forecasts, which helps to explain the corresponding well‐documented empirical regularity. This downward bias increases the likelihood of investment manipulation but decreases the real loss from distortion. Interestingly, the over‐investment induced by earnings guidance helps to mitigate the classic under‐investment problem for a myopic manager with unobservable investment. Earnings guidance can therefore be value‐increasing when managerial myopia is severe.