Can I Borrow Your Footnotes? Footnote Boilerplate's Learning Externality

54 Pages Posted: 22 Jan 2014 Last revised: 23 Apr 2018

See all articles by Jeff L. McMullin

Jeff L. McMullin

Indiana University - Kelley School of Business - Department of Accounting

Date Written: July 1, 2016

Abstract

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

McMullin, Jeff L., Can I Borrow Your Footnotes? Footnote Boilerplate's Learning Externality (July 1, 2016). Kelley School of Business Research Paper No. 2014-13. Available at SSRN: https://ssrn.com/abstract=2381950 or http://dx.doi.org/10.2139/ssrn.2381950

Jeff L. McMullin (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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