Melbourne Accounting Research Seminar - Mary Barth

Mary Barth from Stanford University will present a MARS seminar.

Topic: Information Supporting Investor Valuations: Evidence from a Comparative Content Analysis of Analyst Reports and Form 10-K

Abstract: We address whether financial reports include information that supports investor valuations. We view analyst reports (AR) as reflecting this information and employ topic modeling to compare the contents of AR and Form 10-K. Our main findings follow. (i) Regarding topic categories, Form 10-K focuses heavily on financial reporting, whereas AR focuses most on performance, followed by analysis and business. However, AR discusses financial reporting almost as much as business, which suggests financial reporting is a crucial component of AR. (ii) Regarding performance topics, AR and Form 10-K focus most on revenues and margins. As expected, Form 10-K focuses more than AR on earnings and expenses, whereas AR focuses more on ratios, target prices, recommendations, and adjusted earnings. Surprisingly, AR focuses more on earnings than adjusted earnings or cash flows. (iii) Strikingly, Form 10-K’s MD&A section focuses more than AR on performance, analysis, and business, which suggests MD&A discussion resembles AR discussion. (iv) AR content for economically dissimilar firms depends on firms’ circumstances. Our findings reveal financial reporting information helps support investors’ valuations, which is inconsistent with financial reports lacking relevance.

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