Level of business insights in the MD&A and nonprofessional investors' judgments

Wei Li

Accounting and Finance, 2017, vol. 57, issue 4, 1043-1069

Abstract: This study examines how the level of business insights in a firm's MD&A interacts with its current financial performance to influence nonprofessional investors' judgments. Following the observations and guidance of the ASIC and SEC to define low†and high†insight MD&A, this study finds that low†insight MD&A, when provided for a negative earnings surprise, increases investors’ judgments of the negative earnings persistence and hurts management reputation more than if no MD&A had been provided. High†insight MD&A, when including a plausible external attribution, increases investors’ judgments of management reputation in the negative earnings surprise condition and decreases investors’ judgments of positive earnings persistence.

Date: 2017
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