We focus on the risk of a company receiving an SEC comment letter when there are inconsistent messages between the company’s financial statements and associated 10-K narrative text. Companies can use the flexibility of the text to either clarify and expand on the financials, or to obscure them. We examine the relationship between this discretionary decision within the MD&A and the receipt of a comment letter from the SEC regarding that MD&A. So far, we have documented companies that look unusual relative to their peers have a higher risk of receiving a comment. We are currently performing a more in-depth, careful analysis of the data.
Citation: Brown, S. V. 2017. Disclosure Inconsistency and SEC Comment Letters. Working Paper.
DOI: To Be Determined