Disclosure Theories

We discussed the Ohlson model and highlighted the increasing importance of “other information” in advancing this field. This component captures the price impact of value-relevant events not yet reflected in current financial statements. In this monograph, we explore one such source of “other information” that can be extracted from the narrative content of annual reports. This content, with its varying textual characteristics, plays an important role in modern corporate communications. Managers can strategically use text to either clarify or obscure a firm’s fundamentals. Understanding the reasons behind firms’ disclosures and the content of these disclosures establishes a connection between value relevance and the need for robust disclosure practices.