The Entropy Law, Accounting Data, and Relevance to Decision-Making

This study uses the Entropy index of information developed by Claude Shannon and elaborated by Lev and others to measure the aggregation of accounting information. The question of interest is whether Entropy is a measure of communication to assess transmission channel in communication or the semantic measure of information. This question is discussed and evaluated using an experiment on making loan decisions by commercial lending officers. The results do not support the notion of using Entropy to convey meaning, consistent with Broadhurst and Darnell notion “eliciting meanings in others, requires a code-a set of symbols.” The Entropy measure, however, offers a unique index of data disaggregation in the sense of combining or separating different units of communicated signals