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Essays on the role of narrative disclosures in financial reporting

Research output: ThesisDoctoral Thesis

Publication date2024
Number of pages124
Awarding Institution
Award date18/12/2023
  • Lancaster University
<mark>Original language</mark>English


This thesis contains two essays on the role of narrative disclosures in financial reporting. The first essay, “Tightening rating standards: The effect of narrative risk-related disclosures” (co-authored with Argyro Panaretou and Grzegorz Pawlina), examines how narrative disclosures affect rating stringency, a phenomenon where credit rating agencies assign ratings worse than what firm
fundamentals justify. Results suggest that narrative disclosures about risk and uncertainty in Form 10-K reports moderate rating stringency. Moreover, this moderating effect is more pronounced when Form 10-K reports have textual attributes that can affect how users contextualize firm risk. The second essay, “Context matters: The role of fair value footnote narratives” (co-authored with
Argyro Panaretou and Catherine Shakespeare), investigates how narrative disclosures in Form 10-K report footnotes that discuss the measurement of fair values affect investor uncertainty. The findings of this essay show that longer fair value footnote narratives reduce investor uncertainty for opaque fair values, and are particularly informative to sophisticated investors. Further test
results suggest that standardized and non-specific fair value narratives increase investor uncertainty for Level 3 fair values, and that fair value narratives offer incremental information to investors relative to tabulated fair value footnote disclosures. Finally, the thesis includes a technical appendix, “A guide on extracting, processing, and operationalizing Form 10-K report narratives,”
on the advantages and challenges in identifying, collecting, and integrating narrative disclosure data from Form 10-K reports into archival accounting studies.