Abstract

http://ssrn.com/abstract=2260371
 
 

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Disclosure, Business Change and Earnings Quality


Christopher Ball


Meta Heuristica, LLC

Gerard Hoberg


University of Southern California - FBE Dept; University of Maryland - Department of Finance

Vojislav Maksimovic


University of Maryland - Robert H. Smith School of Business

October 5, 2014


Abstract:     
We use highly granular computational linguistics to assess the MD&A section of the 10-K as a whole. We find that this text is more value relevant when the earnings are less value relevant, and vice-a-versa. MD&A disclosures are especially relevant during periods of business change and when absolute unexplained accruals are high. Novel tests to reveal underlying mechanisms identify several common disclosures, which can be measured in a standardized way for each firm-year. These disclosures are difficult for numerical financial measures to assess and include: investment projects, product introductions, market conditions, marketing, growth strategies, and financial market liquidity. Our results suggest that many discretionary accruals are likely driven by the limited ability of accrual models to account for business change and industry shocks.

Number of Pages in PDF File: 54

Keywords: 10-K, MD&A, Disclosure, Value Relevance, Text Analytics, Latent Dirichlet Allocation, Discretionary Accruals

JEL Classification: G31, G38, G39, M40, M41

working papers series





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Date posted: May 4, 2013 ; Last revised: October 6, 2014

Suggested Citation

Ball, Christopher and Hoberg, Gerard and Maksimovic, Vojislav, Disclosure, Business Change and Earnings Quality (October 5, 2014). Available at SSRN: http://ssrn.com/abstract=2260371 or http://dx.doi.org/10.2139/ssrn.2260371

Contact Information

Christopher Ball
Meta Heuristica, LLC ( email )
Fairfax, VA
United States
HOME PAGE: http://www.metaheuristica.com
Gerard Hoberg (Contact Author)
University of Southern California - FBE Dept ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~hoberg/
University of Maryland - Department of Finance ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://www.rhsmith.umd.edu/finance/faculty/hoberg.aspx
Vojislav Maksimovic
University of Maryland - Robert H. Smith School of Business ( email )
Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)
HOME PAGE: http://www.rhsmith.umd.edu/finance/vmax/
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