Financial Statement Adequacy and Firms’ MD&A Disclosures

63 Pages Posted: 24 Jul 2021 Last revised: 22 Nov 2022

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: November 20, 2022

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 are more likely to provide non-GAAP disclosure and provide more non-GAAP disclosure in the MD&A. Firms with less adequate financial statements also provide a larger number of forward-looking statements. Using topic analysis, we 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: deep learning, machine learning, topic analysis, text segmentation, disclosure.

JEL Classification: D82, G21

Suggested Citation

Brown, Stephen V. and Hinson, Lisa A. and Tucker, Jenny Wu, Financial Statement Adequacy and Firms’ MD&A Disclosures (November 20, 2022). 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)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
394
Abstract Views
1,145
rank
111,240
PlumX Metrics