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

See all articles by Stephen V. Brown

Stephen V. Brown

University of Connecticut - Department of Accounting

Jenny Wu Tucker

University of Florida - Warrington College of Business Administration

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

Brown, Stephen V. and Tucker, Jenny Wu, Large-Sample Evidence on Firms’ Year-Over-Year MD&A Modifications (December 10, 2010). Journal of Accounting Research, 2011, Vol. 49 (2): 309-346. Available at SSRN: https://ssrn.com/abstract=1452977

Stephen V. Brown

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

HOME PAGE: http://www.stephenvbrown.com/

Jenny Wu Tucker (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
383
Abstract Views
2,905
rank
79,658
PlumX Metrics