A Content Analysis of the Modernization of Regulation S-K Items 101, 103, and 105
DOI:
https://doi.org/10.33423/jabe.v26i6.7393Keywords:
business, economics, content analysis, readability, disclosures, modernization, textual characteristics, Regulation S-KAbstract
In 2020, the U.S. Securities and Exchange Commission (SEC) adopted amendments to modernize the disclosure requirements of Regulation S-K Items 101, 103, and 105. These amendments aim to enhance the readability of disclosure documents and provide investors with more relevant information. This study conducts a content analysis of the modernized disclosure items to assess the extent and nature of the changes implemented. A sample of annual reports filed before and after the amendments was examined to determine whether the SEC meets its stated goals of improving the readability of disclosure documents and discouraging repetition and immaterial information. We conclude that the stated SEC goals for modernization were not met in terms of textual characteristics. These findings provide insights into the effectiveness of the SEC's efforts to update disclosure rules and improve investor’s informational value.
References
Albring, S.M., Robinson, D., & Robinson, M. (2014). Audit committee financial expertise, corporate governance, and the voluntary switch from auditor-provided to non-auditor-provided tax services. Advances in Accounting, 30(1), 81–96. Retrieved from https://www.sciencedirect.com/science/article/pii/S0882611014000031
Beatty, A., Cheng, L., & Zhang, H. (2019). Are risk factor disclosures still relevant? Evidence from market reactions to risk factor disclosures before and after the financial crisis. Contemporary Accounting Research, 36(2), 805–838.
Boritz, J.E., Hayes, L., & Timoshenko, L.M. (2016). Determinants of the readability of SOX 404 reports. Journal of Emerging Technologies in Accounting, 13(2), 145–168.
Bushee, B.J., Gow, I.D., & Taylor, D.J. (2018). Linguistic complexity in firm disclosures: Obfuscation or information? Journal of Accounting Research, 56(1), 85–121.
Cazier, R.A., & Pfeiffer, R.J. (2015). Why are 10-K filings so long? Accounting Horizons, 30(1), 1–21.
Dyer, T., Lang, M., & Stice-Lawrence, L. (2017). The evolution of 10-K textual disclosure: Evidence from Latent Dirichlet Allocation. Journal of Accounting and Economics, 64(2–3), 221–245. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/s0165410117300282
Feldman, R., Govindaraj, J., Livnat, J., & Segal, B. (2010). Management’s tone change, post earnings announcement drift, and accruals. Review of Accounting Studies, 15(4), 915–953.
Frey, J. (2021). Striving for Simplicity: Updates to Regulation S-K Items 101 and 105. Journal of Securities Regulation, 45(2), 56–78.
Henry, E. (2008). Are investors influenced by how earnings press releases are written? Journal of Business Communication, 45, 363–407.
Hope, O.K., Hu, D., & Lu, H. (2016). The Benefits of Specific Risk-Factor Disclosures. Review of Accounting Studies, 21(4), 1005–1045. Retrieved from https://link.springer.com/article/10.1007/s11142-016-9375-8
Jurafsky, D., & Martin, J.H. (2014). Speech and language processing (Vol. 3). London: Pearson.
Kothari, S.P., Li, X., & Short, J.E. (2009). The effect of disclosures by management, analysts, and financial press on the equity cost of capital: A study using content analysis. The Accounting Review, 84, 1639–1670.
Lee, Y.J. (2012). The effect of quarterly report readability on information efficiency of stock prices. Contemporary Accounting Research, 29(4), 1137–1170.
Lee, J. (2020). Modernizing Regulation S-K: Ignoring the Elephant in the Room. Securities Regulation Journal, 48(3), 129–150.
Leuz, C., & Schrand, C. (2009). Disclosure and the Cost of Capital: Evidence from Firms' Responses to the Enron Shock. Journal of Accounting Research, 47(2), 241–273. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-679X.2009.00325.x
Lang, M., & Stice-Lawrence, L. (2015). Textual analysis and international financial reporting: Large sample evidence. Journal of Accounting and Economics, 60(2–3), 110–135.
Li, F. (2008). Annual Report Readability, Current Earnings, and Earnings Persistence. Journal of Accounting and Economics, 45(2–3), 221–247. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0165410108000222
Li, F. (2010). The information content of forward-looking statements in corporate filings – A naïve Bayesian machine learning approach. Journal of Accounting Research, 48, 1049–1102.
McMullin, J. (2016). Can I borrow your footnotes? Footnote boilerplate's learning externality.
Mitchell, T.M. (2006). The discipline of machine learning (Vol. 3). Carnegie Mellon University, School of Computer Science, Machine Learning Department.
Miller, B.P. (2010). The effects of reporting complexity on small and large investor trading. The Accounting Review, 85(6), 2107–2143.
Peterson, K. (2012). Accounting complexity, misreporting, and the consequences of misreporting. Review of Accounting Studies, 17(1), 72–95.
Smith, K. (2017). Tell me more: A content analysis of expanded auditor reporting in the United Kingdom. http://dx.doi.org/10.2139/ssrn.2821399
Tetlock, P.C. (2007). Giving Content to Investor Sentiment: The Role of Media in the Stock Market. Journal of Finance, 62(3), 1139–1168. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.2007.01232.x
U.S. Securities and Exchange Commission. (2020). Modernization of Regulation S-K Items 101, 103, and 105. Retrieved from https://www.sec.gov/news/press-release/2020-192
SEC Release Nos. 33-10825; 34-89670; File No. S7-11-19. Retrieved from https://www.sec.gov/rules/final/2020/33-10825.pdf
