Can I Borrow Your Footnotes? Footnote Boilerplate's Learning Externality
54 Pages Posted: 22 Jan 2014 Last revised: 23 Apr 2018
Date Written: July 1, 2016
This study examines how financial statement preparers borrow footnote language and what footnote borrowing indicates about financial statement quality. Footnote borrowing creates footnote boilerplate, an often-criticized textual characteristic of financial statements. I find that preparers often borrow footnote language from other firms through three channels: geographic proximity, external auditor, and industry. I also examine whether the apparent channel through which the preparer borrows footnote language differentially impacts the probability of a future restatement. I find the presence of boilerplate is associated with a decreased likelihood of a future restatement when preparers borrow through the industry peer channel. In contrast, I find that borrowing footnote language through geographic proximity channel, through the external auditor channel, or both is associated with an increased likelihood of a future restatement. These results highlight the importance of understanding the process that results in textual characteristics before making conclusions about their impact on financial statement quality.
Keywords: financial statement footnotes, footnote similarity, boilerplate, Disclosure Framework project, geography, auditor office, plagiarism detection, entropy balancing, genetic matching
JEL Classification: M41, D83, G10
Suggested Citation: Suggested Citation