Abstract

http://ssrn.com/abstract=2260371
 
 

References (56)



 


 



Disclosure, Business Change and Earnings Quality


Christopher Ball


Meta Heuristica, LLC

Gerard Hoberg


University of Southern California - Marshall School of Business

Vojislav Maksimovic


University of Maryland - Robert H. Smith School of Business

August 1, 2015


Abstract:     
We use highly granular computational linguistics to assess the MD&A section of the 10-K as a whole. Our results show that the content of MD&A can be systematically used to explain the valuation of firms, particularly those undergoing business change, where the value relevance of financial statements is comparatively low. An important channel for this improvement is the context provided by MD&A for interpreting discretionary accruals. We find that relevant discussion takes the form of specific topics that explain the nature of business change. These topics include investment strategies, securities issuance, marketing, financial constraints and liquidity, and new agreements. Most specifically, discretionary accruals explained by the MD&A text are not associated with restatements and accounting litigation, whereas unexplained discretionary accruals do predict such misconduct.

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


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Date posted: May 4, 2013 ; Last revised: September 9, 2015

Suggested Citation

Ball, Christopher and Hoberg, Gerard and Maksimovic, Vojislav, Disclosure, Business Change and Earnings Quality (August 1, 2015). 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 - Marshall School of Business ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~hoberg/
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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