Examining the Joint Disclosure of Text and Numbers in Complex Financial Statement Notes

57 Pages Posted: 19 May 2020 Last revised: 23 Jul 2020

See all articles by Jaehan Ahn

Jaehan Ahn

Northeastern University - Accounting Group

Rani Hoitash

Bentley University - Department of Accountancy

Udi Hoitash

Northeastern University - Accounting Group

Date Written: April 22, 2020

Abstract

This study investigates the combination of textual and numerical accounting disclosures, which are often examined in silos by prior research. Focusing on three inherently complicated footnotes, we capture the amount of text used to explain numbers with the ratio of words to numbers. Using comment letters (CLs) that relate to specific financial statement notes to proxy for topic-specific disclosure quality, we find that this ratio is inversely associated with the receipt of comment letters. These results suggest that the disclosure of more words to explain numbers in footnotes, wherein numerical disclosures are closely prescribed, captures an important dimension of disclosure quality. We further find that the ratio of words to numbers increases following a CL receipt and that it is associated with greater value relevance. The findings of the paper may suggest that to improve disclosures and reduce oversight and remediation costs, standards setters that typically focus on numerical disclosures should more closely prescribe textual disclosures.

Keywords: Textual analysis, disclosure quality, disclosure complexity, XBRL, financial statement footnotes

JEL Classification: N20, M40, M41, G18, G28

Suggested Citation

Ahn, Jaehan and Hoitash, Rani and Hoitash, Udi, Examining the Joint Disclosure of Text and Numbers in Complex Financial Statement Notes (April 22, 2020). Northeastern U. D’Amore-McKim School of Business Research Paper No. 3582662, Available at SSRN: https://ssrn.com/abstract=3582662 or http://dx.doi.org/10.2139/ssrn.3582662

Jaehan Ahn

Northeastern University - Accounting Group ( email )

404 Hayden Hall
360 Huntington Ave.
Boston, MA 02115
United States

Rani Hoitash (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

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

Udi Hoitash

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

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