The quantity and quality of narrative disclosures in management reports: CNMV guide effect

ABSTRACT

This study examines how compliance with the CNMV Guide impacts narrative disclosures in listed companies' management reports from 2010 to 2016. Analyzing text and visual elements, we introduce a novel measure for visual content. Additionally, we create a quality indicator surpassing traditional methods to accurately assess disclosure quality.Examining consolidated management reports from 2010 to 2016, we track changes in the quantity and quality of narrative disclosures, their influencing factors, and interrelationships. Findings show significant increases in text and visual length, with visuals growing relative to text. Adherence to the CNMV guide positively impacts text quantity but not visual elements. Moreover, companies complying with the CNMV guide demonstrate higher information quality, effectively meeting stakeholders' needs. These results underscore the positive impact of the CNMV guide on narrative disclosures in listed companies. Our research contributes insights into disclosure dynamics and underscores the importance of adherence to reporting guidelines.

KEYWORDS:

• Narrative disclosure
• management report
• reporting guidelines
• legitimacy theory
• disclosure quality

JEL CLASSIFICATION:

• M40
• M41
• M48
• D82
• G18

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The Management Report of the European Union is equivalent to the Management Commentary of the IASB, the Management Discussion and Analysis (MD&A) of the United States of America (USA) and Canada, and the Operational and Financial Review of the United Kingdom (UK).

2. Such as tables, charts, figures, images, graphs, maps, and flowcharts.

3. As some management reports do not contain visual elements, and the log of zero is not defined, we took the logarithm of one plus the number of equivalent words of visual elements.

4. More specifically, as with the visual elements, as some management reports do not contain keywords related to Q2, we took the logarithm of one plus the number of item words contained in each management report that belonged to that category.

5. More specifically, in the group of figures basically maps and flowcharts were included.

6. A more in-depth analysis of the different sections that contain the management reports that follow the structure proposed by the CNMV guide reveals that the amount of information contained in management reports, through text and visual elements, is not homogeneous in all sections of the report.

7. Havemo (2018, p. 318) ‘visualises the general trend that the number of visuals increased in parallel with the number of pages until the 2000s, after which the reports became considerably longer’.

Additional information

Funding

Grant PID2019-104304GB-I00 funded by MCIN/AEI/10.13039/501100011033; and the University of La Rioja [REGI22/55].