The Question of Disclosure: Providing a Tool for Evaluating Management's Discussion and Analysis

Abstract

The quality of Management Discussion and Analysis (MD&A) disclosure is of perennial concern to regulators and practitioners and has recently gained the attention of investors with the formation of the Enhanced Business Reporting Consortium. Research on the quality of narrative elements of the business report such as the MD&A has long been hampered by a lack of empirical tools to permit objective analysis of qualitative disclosures. The need for such a tool is not limited to analysis of existing disclosures; current policy calls for expanded disclosure that may come at the cost of investor cognitive overload. This paper provides a more intensive tool for evaluating the qualitative disclosures contained in the MD&A than is currently publicly available. The tool yields a quantitative measure of disclosure that can be used in further empirical or experimental research, or by those wishing to objectively compare disclosures across managers, across firms, or across time.

Keywords: financial reporting, business reporting, disclosure quality, MD&A

JEL Classification: M41, M45, G38