| Popis: |
Narrative disclosure provides an opportunity for managers to directly discuss their firms’ future (i.e., forward-looking disclosure) or to provide information about the past that has future implications (i.e., non-forward-looking disclosure). Managers can potentially use these types of disclosures to communicate differences in their expectations and beliefs regarding future and past performance to investors. Consistent with this conjecture, we first find that managers’ use of non-forward-looking narrative disclosure is more responsive to changing economic conditions than is their use of forward-looking narrative disclosure. We then examine how forward and nonforward-looking narrative disclosures add to the informativeness of earnings press releases. We find that the market’s response to non-forward-looking narrative disclosure news is more than eight times larger in economic magnitude than that for forward-looking news. To explain these findings, further analysis suggests that non-forward-looking narrative disclosures are more informative because they are more precise and predict future earnings better. Overall, in light of regulatory pressures for enhanced forward-looking disclosures, our findings underscore the importance of non-forward-looking narrative disclosures as a relevant source of information for market participants. |
