Information environment, proprietary costs and disclosure content in firm 10-K reports

Le résumé fourni par la source

Purpose Given that management's discussion and analysis (MD&A) and footnotes are regulated differently, we test whether voluntary disclosures in these sections of 10-K filings are indeed different when considering managerial objectives. Design/methodology/approach We analyze the relation between characteristics of firm disclosures in MD&A and footnotes and firm performance in the presence of demand for information and industry competition. Findings Better firm performance is related to shorter MD&As and footnotes. The relation between length and performance is consistent across MD&As and footnotes when managerial objectives of providing information and mitigating proprietary costs are considered. Both also use similar types of words and tone, and their characteristics are associated with firms' future performance and returns. We conclude that even under differing degrees of flexibility and regulatory oversight, managers use the MD&As and footnotes disclosure channel in a complementary way. Research limitations/implications Results are limited to firms whose filings can be downloaded and are able to be analyzed textually. Results depend on schemes and protocols used for textual analyses and inferences may be subject to concerns related to endogeneity. Originality/value We recognize and explicitly capture the idea that in addition to being used to explain performance, disclosures in MD&As and footnotes are also subject to differing regulations and may also be influenced by managerial objectives. We control for two important managerial motivations – providing information to markets and mitigating the competitive disadvantage resulting from the disclosure of this information – to show that managers use the two channels in a complimentary way.

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