Examining the Joint Disclosure of Text and Numbers in Complex Financial Statement Notes

This study investigates the combination of textual and numerical accounting disclosures, which are often examined in silos by prior research. Focusing on three inherently complicated footnotes, we capture the amount of text used to explain numbers with the ratio of words to numbers. Using comment letters (CLs) that relate to specific financial statement notes to proxy for topic-specific disclosure quality, we find that this ratio is inversely associated with the receipt of comment letters. These results suggest that the disclosure of more words to explain numbers in footnotes, wherein numerical disclosures are closely prescribed, captures an important dimension of disclosure quality. We further find that the ratio of words to numbers increases following a CL receipt and that it is associated with greater value relevance. The findings of the paper may suggest that to improve disclosures and reduce oversight and remediation costs, standards setters that typically focus on numerical disclosures should more closely prescribe textual disclosures