Disclosure Informativeness and the Tradeoff Hypothesis: A Text-Based Analysis
Meta Heuristica, LLC
University of Maryland - Department of Finance
University of Maryland - Robert H. Smith School of Business
July 24, 2013
Using highly granular computational linguistics tools, we find that disclosure in the Management's Discussion and Analysis section of the 10-K is highly informative regarding valuation, and its informativeness is likely influenced by trade offs. This disclosure is most informative regarding future cash flows, and can only be partially assessed using sentiment analysis or methods with low levels of granularity. Content analysis reveals that the following entrepreneurial discussions are most relevant: investment projects, revenue generation, marketing, growth strategies, and financial market liquidity. Analysis in time series reveals that firms likely manage informativeness following basic trade offs, as informativeness increases when firms issue equity, and following the 2003 SEC guidance release.
Number of Pages in PDF File: 56
Keywords: Valuation, 10-K, MD&A, Disclosure, Informativenesss, Text Analytics, Latent Dirichlet Allocation, Signaling
JEL Classification: G31, G38, G39, M40, M41working papers series
Date posted: May 4, 2013 ; Last revised: July 25, 2013
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