Keywords

textual analysis, support vector regressions, disclosure, accruals

Abstract

We examine the usefulness of support vector regressions (SVRs) in assessing the content of unstructured, qualitative disclosures by relating MD&A-based SVR-accrual estimates (MD&Aaccruals) to actual accruals. We find that MD&A accruals explain a statistically and economically significant portion of firm-level accruals and identify more persistent accruals. We find that the explanatory power of MD&A accruals is higher for more readable 10Ks, thereby providing evidence for the construct validity of the readability measures. To highlight the flexibility of the SVR method, we apply it to other dependent variables and disclosures. We find that MD&A-based cash-flow forecasts produced by SVR predict next period’s cash flows. We apply SVR to conference call transcripts and find accruals estimates have similar explanatory power to MD&A accruals. Finally, the explanatory power of MD&A accruals increases between 1994 and 2013.

Original Publication Citation

Frankel, R., J. Jennings, and J. Lee. 2016. "Using Unstructured and Qualitative Disclosures to Explain Accruals," Journal of Accounting and Economics 62 (2 - 3), 209-227.

Document Type

Peer-Reviewed Article

Publication Date

2016

Publisher

Journal of Accounting and Economics

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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