Large-Sample Evidence on Firms’ Year-Over-Year MD&A Modifications
Journal of Accounting Research, 2011, Vol. 49 (2): 309-346
56 Pages Posted: 17 Aug 2009 Last revised: 24 Mar 2019
Date Written: December 10, 2010
Abstract
The Securities and Exchange Commission (SEC) has expressed concern about the informativeness of firms’ Management Discussion and Analysis (MD&A) disclosures. A firm’s MD&A is potentially uninformative if it does not change appreciably from the previous year after significant economic changes at the firm. We introduce a measure for narrative disclosure - the degree to which the MD&A differs from the previous disclosure - and provide three findings on the usefulness of MD&A disclosure. First, firms with larger economic changes modify the MD&A more than those with smaller economic changes. Second, the magnitude of stock price responses to 10-K filings is positively associated with the MD&A modification score, but analyst earnings forecast revisions are unassociated with the score, suggesting that investors - but not analysts - use MD&A information. Finally, MD&A modification scores have declined in the past decade even as MD&A disclosures have become longer; the price reaction to MD&A modification scores has also weakened, suggesting a decline in MD&A usefulness.
Keywords: MD&A, Voluntary Disclosure, Annual Report, Similarity Score
JEL Classification: M41, M44
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Giving Content to Investor Sentiment: The Role of Media in the Stock Market
-
More than Words: Quantifying Language to Measure Firms' Fundamentals
By Paul C. Tetlock, Maytal Saar-tsechansky, ...
-
Is All that Talk Just Noise? The Information Content of Internet Stock Message Boards
By Murray Z. Frank and Werner Antweiler
-
Media Coverage and the Cross-Section of Stock Returns
By Lily H. Fang and Joel Peress
-
When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks
By Tim Loughran and Bill Mcdonald
-
Do Stock Market Investors Understand the Risk Sentiment of Corporate Annual Reports?
By Feng Li
-
Yahoo! For Amazon: Sentiment Parsing from Small Talk on the Web
By Sanjiv Ranjan Das and Mike Y. Chen
-
By Zhi Da, Joseph Engelberg, ...
-
By Joshua D. Coval and Tyler Shumway
-
The Impact of Credibility on the Pricing of Managerial Textual Content
By Elizabeth Demers and Clara Vega