The information content of management discussion and analysis and stock price crash risk: based on text vectorization method

MENG Qingbin1 YANG Junhua1 LU Bing1,2

(1.Renmin Business School 100872)
(2.Party Committee Office (Comprehensive Department), Chinese Institute of Certified Public Accountants 100039)

【Abstract】In this paper, we discussed the impact of informative content of management discussion and analysis (MD&A) on stock price crash risk by using the method of text vectorization. Using the MD&A in annual reports of China A-share listed firms from 2007 to 2015, we found that the informative content of MD&A could reduce future stock price crash risk. After further dividing MD&A into a review section and a preview section, we found that only the informative content of the preview section could significantly affect stock price crash risk. The conclusions still stood when endogeneity was controlled. We also studied the effect of textual readability and information asymmetry on the correlation between MD&A and stock price crash risk. The results showed that the higher the readability of information and the higher the degree of information asymmetry were, the more greatly the informative content of the preview section affected stock price crash risk. After redefinition of the calculation interval of stock price crash risk and control over stock price synchronicity, the informative content in the MD&A preview section still significantly affected stock price crash risk, indicating that the conclusions of this paper were robust. This paper enriches the literature on the influencing factors of stock price crash risk from the perspective of textual information, and contributes to research on the usefulness of MD&A from the perspective of incremental information, thus having important theoretical and practical significance.

【Keywords】 management discussion and analysis; stock price crash risk; text vectorization; informative content;


【Funds】 General Project of National Natural Science Foundation of China (71772174) Youth Project of National Natural Science Foundation of China (7160253) Key Project of National Accounting Research Projects of Ministry of Finance (2015KJA010)

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(Translated by MO Jiaxing)


    [1]. ① See Article 32 of Section 8 in the Standards for Contents and Formats of Information Disclosures by Companies Offering Securities to the Public No. 2—Contents and Formats of Annual Reports (2007). [^Back]

    [2]. ② For the specific definition of this method, see Section 2 (Definition and calculation of major variables) of Part 3 (Research design) herein. [^Back]

    [3]. ① For the detailed definitions of informative content and standard information, see Section 2 (Definition and calculation of major variables) of Part 2 (Research design) herein. [^Back]

    [4]. ① For a more detailed description of this indicator, see Section 4 of Hanley and Hoberg (2010). [^Back]

    [5]. ① Due to space limitations, the relevant coefficient table here is omitted. For details, see the disclosed appendix on the website of China Industrial Economics ( [^Back]


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This Article


CN: 11-3536/F

Vol , No. 12, Pages 132-150

December 2017


Article Outline



  • 1 Introduction
  • 2 Literature review and hypotheses derivation
  • 3 Research design
  • 4 Analysis of empirical results
  • 5 Further study
  • 6 Conclusions and policy implications
  • Footnote