Repetitive Disclosures in the MD&A

• In Event: Disclosure Language

Abstract

This study is the first to empirically analyze repetitive disclosures in the Management Discussion and Analysis (MD&A) section of the 10-K filing. Repetitive disclosures are defined as the amount of content in the MD&A repeated from the audited financial statement notes. I first find that firms with greater year-to-year absolute change in earnings, less powerful CEOs, and more operational uncertainty are associated with more repetitive disclosures. These findings suggest that not all managers use repetitive disclosures to obfuscate bad news. Rather, some managers use repetitive disclosures to emphasize news and uncertain events. The Securities and Exchange Commission (SEC) believes that repetitive disclosures are uninformative and that such disclosures decrease the informativeness of other (non-repetitive) disclosures in the MD&A. Contradicting the SEC’s views, in my primary analyses I find that repetitive disclosures are informative to investors and that such disclosures increase the informativeness of non-repetitive disclosures; these results are particularly strong for individual investors. Overall, my results suggest that repetitive disclosures are informative and that such disclosures can be an effective tool for providing information to investors.

Author

• Heather Li, Rotman School of Management