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.

Exploiting the random assignment of judges to corporate bankruptcy filings, we estimate financial costs of judicial inexperience. Despite new judges’ prior legal experience, formal education, and rigorous hiring process, their public Chapter 11 cases spend 19% more time in bankruptcy, realize 31% higher legal and professional fees, and 21% lower creditor recovery rates. Examining possible mechanisms, we find that new judges take longer to rule on motions and cases assigned to these judges file more plans of reorganization. Conservative estimates suggest that minor policy adjustments could increase creditor recoveries by approximately $16.8 billion for the public firms in our sample.