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SSRN
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The Information Content of 10-K Narratives: Comparing MD&A and Footnotes Disclosures

SSRN Electronic Journal
2016
  • 8
    Citations
  • 4,916
    Usage
  • 56
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    8
    • Citation Indexes
      8
  • Usage
    4,916
    • Abstract Views
      3,977
    • Downloads
      939
  • Captures
    56
  • Ratings
    • Download Rank
      50,227

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.

Bibliographic Details

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