The use of annual reports narrative disclosures to predict the firm's financial risk of bankruptcy
DOI:
https://doi.org/10.11606/rco.v3i5.34729Keywords:
corporate annual reports, content analysis, financial performance, disclosure qualityAbstract
In this work we aimed to analyze the appropriateness of information presented at the narrative sections of corporate annual reports as predictors of a firm's discontinuity. We gathered a sample of corporate annual reports from companies listed at BOVESPA and then we applied two models developed by Smith and Taffler (2000). The sample was composed by failed and successful firms, matched by industry and firm size. For the failed firms, we collected the last annual report before the bankruptcy. Annual reports were content analyzed through a procedure developed by Smith and Taffler (2000). Subsequently, we determined the scores for each firm using Smith and Taffler's (2000) models and analyzed the discriminating power of each model. Results pointed out that Smith and Taffler's (2000) models, even though being developed in a different institutional setting, provided a significant discriminating power between failed and non failed firms. This result suggests that the narrative disclosure in annual reports is an useful source of information related to firms continuity.Downloads
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