The UK financial sector is a major driver of economic activity and transparent and effective financial communication is a key determinant of its success. Audited financial statements, unaudited corporate disclosures, and information signalled through corporate financial choices are the primary ways that firms communicate with capital market participants. These mechanisms, together with information from analysts, financial journalists, rating agencies and other market commentators external to the firm combine to form the Corporate Financial Information Environment (CFIE).
Narrative disclosures represent a large part of firms’ overall financial communications with investors. We will study the causes and consequences of corporate disclosure and financial reporting outcomes. While a considerable body of research exists on financial narratives, it has been limited by the methods used for measuring the characteristics of such disclosures. In particular, the need to hand-collect relevant data from firms’ annual reports and the subjectivity of textual scoring methods have restricted progress. Recent advances in computing and linguistics provide a basis for undertaking more sophisticated analyses.
This project brings together a multidisciplinary team with the aim of developing statistical and computer-based techniques for measuring the properties of UK corporate disclosures. In particular, we will develop new ways of measuring the quality and tone of company narratives using computer-based rankings of annual reports. Both the rankings and linguistic techniques on which these rankings are based will be made available to those seeking information on corporate disclosure policy or wishing to undertake their own analysis of specific narrative statements. We will also use the findings from our analysis as the basis for studying how managers communicate expectations of firm performance to investors and they seek to manipulate investors’ impressions of reported results.
The project is expected to yield important insights for business policy makers, accounting standard setting bodies and financial market information regulators. We also expect equity market participants including investors, investment analysts, finance directors, auditors, and firm officials to benefit from the research.
For more information, visit the project webpage.
Team:
- Professor Martin Walker, Manchester Business School, The University of Manchester.
- Professor Steven Young, Management School, Lancaster University.
- Dr Paul Rayson, School of Computing and Communications, Lancaster University.
- Dr Mahmoud El-Haj, School of Computing and Communications, Lancaster University.
- Dr Vasiliki Athanasakou, Accounting, London School of Economics.
- Dr Thomas Schleicher, Manchester Business School, The University of Manchester.
Recent news associated with this project:
- Corporate Financial Information Environment (CFIE) (9 July 2013)
The UK financial sector is a major driver of economic activity and transparent and effective financial communication is a key determinant of its success. Audited financial statements, unaudited corporate disclosures, and information signalled through corporate financial choices are the primary ways that firms communicate with capital market participants. These mechanisms, together with information from analysts, …