The Information Content of 10-K Narratives: Comparing MD&A and Footnotes Disclosures
SSRN Electronic Journal
2016
- 8Citations
- 4,916Usage
- 56Captures
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
Article Description
This paper examines the textual characteristics of firms’ 10-K filings over a 20 year time period. We find that investors’ reaction to textual characteristics of the MD&A in 10-Ks is much stronger and more timely than their reaction to textual characteristics of the notes to the financial statements. Characteristics of the MD&A and footnotes are also predictive of future returns, volatility, and firm profitability. Particularly, changes in the text of the MD&A and footnotes and differences between the tone of the two sections predict negative future stock returns and operating performance. Our evidence suggests that investors generally underreact to the information in the narrative sections particularly to information in the footnotes compared to the MD&A. We also find suggestive evidence that firms exploit these limits in investors’ information processing through their disclosure choices within 10-K filings.
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