Abstract

http://ssrn.com/abstract=2260371
 
 

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Disclosure Informativeness, Business Change and Earnings Quality


Christopher Ball


Meta Heuristica, LLC

Gerard Hoberg


University of Maryland - Department of Finance

Vojislav Maksimovic


University of Maryland - Robert H. Smith School of Business

August 20, 2014


Abstract:     
We use highly granular computational linguistics to assess the content of the MD&A section of the 10-K as a whole. We find that this content is more informative when the financial statements are less informative, and vice-a-versa. MD&A disclosures are especially informative during periods of business change and when earnings quality is low. Novel tests to reveal underlying mechanisms identify several common informative disclosures, which can be measured in a standardized way for each firm-year. They are difficult for financial statements 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, industry shocks, and the position of individual firms relative to industry peers.

Number of Pages in PDF File: 55

Keywords: Valuation, 10-K, MD&A, Disclosure, Informativenesss, Text Analytics, Latent Dirichlet Allocation, Signaling

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

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Date posted: May 4, 2013 ; Last revised: August 29, 2014

Suggested Citation

Ball, Christopher and Hoberg, Gerard and Maksimovic, Vojislav, Disclosure Informativeness, Business Change and Earnings Quality (August 20, 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 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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