The Impact of Regulatory Framework on Management Commentary Reports

Abstract

This study investigates the extent of comparability of managers’ disclosure in Management Discussion and Analysis (MD&A) or Operating and Financial Review (OFR) reports and explanatory factors for disclosure. We performed a content analysis on the financial year 2003 reports of 172 listed companies from five industry groups from the U.S.A, Canada, the United Kingdom and Australia using a self-constructed disclosure checklist based on recommendations or requirements of securities regulators and standard setters. The results show that, despite international competitive market pressures to converge accounting standards and financial disclosure, management commentary information strongly reflects the country in which it is produced. The U.S. companies provide more financial and quantitative information and U.K. companies provide more non-financial and qualitative information. Although smaller, Canadian companies provide relatively high levels of disclosure while Australian companies do not. Many variables identified in prior literature as explanatory factors for disclosure are associated with financial and quantitative disclosure but provide little insight into managers’ use of forward-looking, non-financial and qualitative disclosures.