Lexical Divergence Between MD&A and Financial Statement Notes and Analyst Forecast Dispersion

초록

Purpose – This paper examines whether inconsistency in uncertainty-related language across major sections of the annual report is associated with analysts' information processing. The study focuses on lexical divergence between MD&A and the financial statement notes and whether such divergence relates to greater analyst forecast disagreement. Design/Methodology/Approach – Using a firm-year sample of Chinese A-share non-financial listed firms from 2010 to 2023, the study extracts MD&A and note disclosures, identifies uncertainty-related language in each section, and constructs a section-level lexical divergence measure. Panel regressions then relate analyst forecast dispersion to this measure after controlling for firm characteristics and fixed effects. Additional tests examine whether the association varies with accounting estimation intensity and report readability and whether similar patterns hold for forecast error and information environment outcomes. Findings – Greater lexical divergence between MD&A and the financial statement notes is positively associated with analyst forecast dispersion, and the association remains after a broad set of controls and fixed effects. The association is stronger for firms with greater reliance on accounting estimates and for firms with less readable annual reports. Lexical divergence is also associated with higher forecast error and a weaker information environment. Research Implications – The findings suggest that disclosure quality depends not only on the amount of information provided but also on consistency across report sections. Section-level coherence is relevant to analysts' interpretation of annual reports, with implications for managers, regulators, and investors concerned with reporting transparency.

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