Different Time, Different Tone: Company Life Cycle
Journal of Contemporary Accounting and Economics, Forthcoming
50 Pages Posted: 2 Oct 2017 Last revised: 26 Oct 2018
Date Written: October 24, 2018
This paper examines how the qualitative characteristics of annual reports vary across different phases of the corporate life cycle. We measure the complexity, tone, and sentiment of 10-Ks, and classify firms into their distinct life cycle phases. Considering a sample of 24,268 firm-year observations from 2000–2014, we find that each of the life cycle indicators is a determinant of different textual characteristics. The results show that firms’ 10-K disclosures become less complex, less ambiguous, and more optimistic as they progress from the introduction to the maturity stage. Clarity and readability peak at the maturity level, prior to firms entering the final decline stage, characterized by the most negative and ambiguous disclosures. This paper provides timely evidence to regulators and investors on the circumstances under which firms provide qualitatively different disclosures and shows that the textual characteristics of firm disclosure are not static over life cycle stages.
Keywords: Qualitative Disclosure, Firm Life Cycle, 10-K, Textual Characteristics
JEL Classification: L21, M41
Suggested Citation: Suggested Citation