Financial Statement Adequacy and Firms’ MD&A Disclosures

60 Pages Posted: 24 Jul 2021 Last revised: 28 Oct 2023

See all articles by Stephen V. Brown

Stephen V. Brown

University of Connecticut - Department of Accounting

Lisa A. Hinson

University of Florida - Warrington College of Business Administration

Jenny Wu Tucker

University of Florida - Warrington College of Business

Date Written: October 28, 2023

Abstract

Firms are required to provide financial information via the financial statements and the MD&A—a narrative explanation of the financial statements. Our study examines how firms use the MD&A channel when their financial statement channel is inadequate. We focus on two textual attributes of the MD&A—non-GAAP disclosure and forward-looking statements. We find that firms with less adequate financial statements discuss non-GAAP measures more and provide a larger number of forward-looking statements. We then identify the topics, and therefore the context, in which non-GAAP and forward-looking disclosures are provided. In addition, we examine how firms use the mix of non-GAAP and forward-looking disclosures when the financial statement channel is inadequate. Our study provides evidence on how managers use the MD&A, a relatively more flexible channel, to provide information when their financial statement channel is less adequate.

Keywords: MD&A; disclosure; financial statements; text segmentation; machine learning; topic analysis.

JEL Classification: C6, G3, M2, M4

Suggested Citation

Brown, Stephen V. and Hinson, Lisa A. and Tucker, Jenny Wu, Financial Statement Adequacy and Firms’ MD&A Disclosures (October 28, 2023). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3891572 or http://dx.doi.org/10.2139/ssrn.3891572

Stephen V. Brown

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

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

Lisa A. Hinson

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Jenny Wu Tucker (Contact Author)

University of Florida - Warrington College of Business ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

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