Decoding Strategy and Business Model Narratives: A Textual Analysis of Corporate Disclosures

Abstract

Regulators and financial statement users are pushing management to articulate their vision for creating and maintaining shareholder value. We construct the first large sample corpus of annual report commentary on strategy and business models (SBM) and provide the first systematic analysis of the properties of such disclosures. We reject the hypothesis that SBM discourse is merely padding. Instead, we find that: themes prominent in the SBM corpus align with popular strategy frameworks; these themes are salient to the SBM corpus when compared to a reference corpus, and management tailor the mix of SBM topics to reflect their firms' distinctive approach to value creation. Contrary to best practice guidance, however, SBM commentary is less specific, less precise about time horizon (short-and long-term), and less balanced (more positive) in tone relative to general management commentary. We conclude that symbolic compliance and legitimization characterize the typical annual report discussion of SBM. We identify proprietary cost considerations and obfuscation as determinants of symbolism in SBM reporting.

Keywords: SBM, disclosure, value creation, competition, LDA, strategy, business model

JEL Classification: M41, D82, G18, G38