The information content of narrative disclosures in financial statements.

Abstract

The aim of this thesis is to analyse the impact of narrative information in annual reports on financial markets. While the effect of textual corporate information on stock returns is well examined in the literature, other firm characteristics are far less investigated. The current body of literature also neglects the relevance of specific text sections within annual report filings for capital market participants. Both aspects shall be addressed by this thesis. This thesis asks to what extent and in what ways narrative corporate disclosures affect a firm’s stock market char- acteristics. It does so to better enable academics, company officials, and investors to understand the importance of textual information disclosed in corporate reports. Using regression analysis on corporate textual information and stock characteristics, the thesis shows that narrative dis- closures not only affect stock returns but also the liquidity and risk profiles of public listed companies. The thesis also shows that specific text sections within annual reports filed with the United States Securities and Exchange Commission (SEC) are more informative than others. The significance of this thesis is that it informs various corporate stakeholders about the im- portance of narrative corporate disclosures and how textual information can provide additional value beyond the financial figures disclosed by companies in regulatory filings.