No. 81: Does the story matter? Putting financial statement numbers into context using XBRL data

Abstract

Using XBRL data in a tax disclosure setting, we create a new measure of “discussed numbers” that captures the context of firms’ financial reporting—namely the qualitative discussion of numbers in financial statements. Regarding determinants, we show that our measure is indicative of managers explaining higher GAAP effective tax rates (ETRs) and greater volatility in both GAAP and cash ETRs. Regarding consequences, we find that discussing tax numbers generally, and uncertain tax benefits specifically, improves analyst forecast accuracy and reduces dispersion of implied ETRs. We confirm that the benefits to analysts manifest in sentences that explain tabulated numbers, and not only in sentences that simply contain or repeat numbers. Finally, we find incrementally lower forecast dispersion when firms discuss particularly unique numbers, as captured by non-standardized “extended” XBRL tags. Overall, this study enhances our understanding of corporate disclosure by explicitly measuring the interrelation of numerical values and narrative discussion.