A Classification Scheme to Examine Management Discussion and Analysis Compliance.

SYNOPSIS: Management Discussion and Analysis (MD&A) is disclosure required by the Securities and Exchange Commission (SEC) as part of periodic filings and registration statements. The disclosure rules call for management analysis and discussion of important matters and trends related to liquidity, capital resources and results of operations. The SEC's 1989 issuance of "Management's Discussion and Analysis of Financial Condition and Results of Operations; Certain Investment Company Disclosures" (FRR 36) provided additional interpretive guidance on MD&A disclosure. The first purpose of this paper is to set forth a classification scheme developed for measuring and analyzing MD&A disclosure frequencies. To test the applicability of the classification scheme a diverse sample of annual reports was analyzed. The frequency analysis results are presented, as well as compliance assessments based on the expected frequencies of underlying events. The second purpose of this paper is to capture and analyze the response to FRR 36 in a sample of corporate MD&A disclosures, as a means of assessing corporate managements' response to the release of the interpretation. Frequency changes after the issuance of FRR 36, and differences in frequencies of known and anticipated disclosure items are analyzed as indicators of managements' responses to FRR 36. The companies in our sample appear to have responded to the issuance of FRR 36 by increasing their disclosure, although the result was stronger one year after the implementation date. Data Availability: Data can be obtained from sources identified in the article.