Narrative Accounting Disclosures

Abstract

Narrative accounting disclosures are an integral part of the corporate financial reporting package. They are deemed to provide a view of the company “through the eyes of management”. The narratives represent management's construal of corporate events and are largely discretionary. Research in accounting narratives examines informational and presentational aspects of narrative financial reporting. Narrative accounting disclosures are studied from an informational perspective through usefulness surveys, predictive ability research, and thematic and readability studies. Presentational studies are related to impression management and primarily focus on selectivity and bias in the content patterns of the narrative disclosures. In addition, contextual factors affecting the content of the narrative disclosures have been investigated. Cross‐sectional and temporal variation in narrative accounting disclosures may originate from internal sources (e.g., performance changes, the establishment of routines, and corporate governance structures) and external forces (e.g., analyst following, regulatory monitoring, and litigation risk).

Corporate Social Responsibility Orientation and Textual Features of Financial Disclosures.

“…Narrative corporate disclosure provides investors a view of the firm through the eyes of the management. With wide discretion on how to convey their message, textual disclosure enables management to offer context within which investors can interpret the firm's performance, financial position and more importantly management objectives in the periods ahead (Aerts 2015). Previous literature has shown that the features of textual disclosure, including readability and tone, have significant market implications (Lawrence 2013;Lehavy et al 2011;Loughran and Mcdonald 2011;Loughran and McDonald 2016).…”