The Real Effects of Managerial Narratives: Evidence from a Quarter-Billion Words
50 Pages Posted: 20 May 2012
Date Written: May 14, 2012
We show that a firm’s investments are associated with the qualitative content of its rivals’ Management Discussion and Analysis (MD&A) disclosures: a firm invests more when its rivals’ MD&A disclosures are more optimistic. We also find that the sensitivity of a firm’s investments to its rivals’ qualitative MD&A content varies cross-sectionally: the association between the firm’s investments and the optimism in its rivals’ MD&A disclosures is stronger when MD&A disclosures are more certain, rivals are better governed and their industry is less concentrated. We conclude that qualitative MD&A disclosures contain useful information for corporate investments.
Keywords: MD&A, disclosure, investment
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