Management Commentary Articulating Strategy and Business Model: Measurement and Impact

Accounting

Speaker:Steven Young, Lancaster University Management School
Date: Wednesday 28 February 2018
Time: 14:30 - 16:00
Location: Kolade Teaching Room, Building One

Further details

Abstract


We measure annual report commentary articulating an entity’s strategy and business model, and then examine the capital market impact of enhancing such disclosure. Our empirical disclosure proxy is based on n-grams drawn from popular strategy textbooks and the academic strategy literature. Validation tests confirm that our measure: (a) correlates with manual classifications of strategy reporting quality produced by domain experts; (b) covaries predictably with firm-level drivers of strategy-focused disclosures identified by prior research; and (c) captures the structural break in reporting practice reflecting the regulatory mandate for a subset of London Stock Exchange firms to explain their strategy and business model. Using a difference-in-differences design that exploits this exogenous and measurable increase in strategy-focused disclosure, we show that enhanced commentary on strategy and business model reduces investor uncertainty and increases the speed at which annual report information is incorporated into stock price.