Management Commentary Articulating Strategy and Business Model: Measurement and Impact
|Speaker:||Steven Young, Lancaster University Management School|
|Date:||Wednesday 28 February 2018|
|Time:||14:30 - 16:00|
|Location:||Kolade Teaching Room, Building One|
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.