Do the Benefits of Reducing Accounting Complexity Persist in Markets Prone to Bubble?

Standard setters and regulators generally assume that making accounting easier to process leads to more efficient markets, thereby benefiting traders. I test that assumption in markets that are prone to price bubbles. Market efficiency will obtain only if reducing complexity in accounting leads traders to acquire and process that information more readily, and then to trade in a manner that moves price closer to fundamental value. This reasoning implies two causal links - (1) the link from less complex information to greater processing of that information, and (2) the link from greater processing of information to more efficient markets. I test these causal links in an experiment by examining the effect of reducing accounting complexity on market efficiency, as mediated by processing accounting information and as moderated by the market's propensity to form price bubbles. Traders buy and sell shares of an asset in a multiperiod, double auction market in which speculative capital gains are possible. I find that reducing complexity in information increases processing. However, this processing increases market efficiency only in markets that are less prone to a price bubble. Conversely, in markets more prone to bubble some traders that process information trade according to value, while other informed traders utilize profitable non-value trading strategies that exacerbate price inefficiencies