Has the COVID-19 Pandemic Changed Firms’ Management Discussion and Analysis Disclosure Approach? Evidence from Japan

Abstract

ABSTRACT This study examines whether the COVID-19 pandemic changes Japanese firms’ approach to management discussion and analysis (MD&A) disclosure. Based on readability (text genericity) and tone, I investigate whether management obfuscate text during the pandemic or attempt to provide information. Additionally, I examine whether bad news is inherently difficult to read based on the difficulty of the text. During the pandemic, the tone value of MD&A disclosure is negative in fraudulent firms and more negative in nonfraudulent firms. Both types of firms attempt to communicate their company’s situation with honesty, thus satisfying the legitimacy criterion of communicative action theory. This result is not consistent with the results for Europe and the United States, where readability is lower. As a disaster-prone country, Japanese managers may find it easier to share deteriorating firm performance with investors. Nonfraudulent firms also increase textual difficulty during the pandemic, which supports ontology theory. Data Availability: Data are available from sources identified in the paper. JEL Classifications: M41; M42.