Finding the Narrative in the Numbers: Long-Term Investors’ Demand for Accounting Information

Abstract

I study the MD&A section of 10-K filings and use disclosed numbers within the text of corporate narratives to proxy for the qualities of information that are demanded by long-term investors. I hypothesize and show that the prevalence of quantitative information in firms’ written communication is strongly and positively linked to long-term institutional ownership. Numbers capture a dimension of business communication that is opposite in direction to a short-term disclosure horizon. Exploiting language that surrounds numbers, I study topical narratives that are directly related to firm value and confirm the importance of numeric information to long-term shareholders in the relevant contexts of investment and forward-looking sentences.