The Usefulness of MD&A Disclosures in the Retail Industry

The SEC believes that MD&A disclosures provide investors with useful information that clarifies and supplements the financial statements. In this study, we use data from retail firms to examine the predictive ability and value relevance of MD&A discussion of the results of operations and capital resources. In particular, we examine the usefulness of information on the sources of revenue changes (comparable store sales growth, store openings, and store closings) and of two measures of future capital resource plans (planned store openings and capital expenditures). We find that these variables contribute incremental explanatory power in future revenues, future earnings, and contemporaneous stock return regressions that include financial statement variables.