Textual analysis training for European doctoral researchers in accounting

Professor Steve Young (Lancaster University Management School and PI of the CASS ESRC funded project Understanding Corporate Communications) was recently invited to the 6th Doctoral Summer Program in Accounting Research (SPAR) to deliver sessions specializing in textual analysis of financial reporting. The invitation reflects the increasing interest in narrative reporting among accounting researchers.

The summer program was held at WHU – Otto Beisheim School of Management (Vallendar, Germany) 11-14 July, 2016.

Professor Young was joined by Professors Mary Bath (Stanford University) and Wayne Landsman (University of North Carolina, Chapel Hill), whose sessions covered a range of current issues in empirical financial reporting research including disclosure and the cost of capital, fair value accounting, and comparative international financial reporting. Students also benefitted from presentations by Prof. Dr. Andreas Barckow (President, Accounting Standards Committee of Germany) and Prof. Dr. Sven Hayn (Partner, EY Germany).

The annual SPAR training event was organised jointly by the Ludwig Maximilian University of Munich School of Management and the WHU – Otto Beisheim School of Management. The programme attracts the top PhD students in accounting from across Europe with the aim of introducing them to cutting-edge theoretical, methodological, and practical issues involved in conducting high-quality financial accounting research. This year’s cohort comprised 31 carefully selected students from Europe’s leading business schools.

Professor Young delivered four sessions on textual analysis. Sessions 1 & 2 focused on the methods currently applied in accounting research and the opportunities associated with applying more advanced approaches from computational linguistics and natural language processing. The majority of extant work in mainstream accounting research relies on bag-of-words methods (e.g., dictionaries, readability, and basic machine learning applications) to study the properties and usefulness of narrative aspects of financial communications; significant opportunities exist for accounting researchers applying more mainstream textual analysis methods including part of speech tagging, semantic analysis, topic models, summarization, text mining, and corpus methods.

Sessions 3 & 4 reviewed the extant literature on automated textual analysis in accounting and financial communication. Session 3 concentrated on earnings announcements and annual reports. Research reveals that narrative disclosures are incrementally informative beyond quantitative data for stock market investors, particularly in circumstances where traditional accounting data provide an incomplete picture of firm performance and value. Nevertheless, evidence also suggests that management use narrative commentaries opportunistically when the incentives to do so are high.  Session 4 reviewed research on other aspects of financial communication including regulatory information [e.g., surrounding mergers and acquisitions (M&A) and initial public offerings (IPOs)], conference calls, analysts’ reports, financial media, and social media. Evidence consistently indicates that financial narratives contain information that is not captured by quantitative results.

Slides for all four sessions are available here.

The event was a great success. Students engaged actively in all sessions (including presentations and discussions of published research using textual analysis methods). New research opportunities were explored involving the analysis of new financial reporting corpora and the application of more advanced computational linguistics methods. Students also received detailed feedback from faculty on their research projects, a significant number of which involved application of textual analysis methods. Special thanks go to Professor Martin Glaum and his team at WHU for organizing and running the summer program.

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