Corporate Financial Information Environment (CFIE)


The UK financial sector is a major driver of economic activity and transparent and effective financial communication is a key determinant of its success. Audited financial statements, unaudited corporate disclosures, and information signalled through corporate financial choices are the primary ways that firms communicate with capital market participants. These mechanisms, together with information from analysts, financial journalists, rating agencies and other market commentators external to the firm combine to form the Corporate Financial Information Environment (CFIE).

Narrative disclosures represent a large part of firms' overall financial communications with investors. Textual commentaries help to clarify issues obscured by complex accounting methods and footnote disclosures. In addition, narratives summarise corporate strategy, contextualize results, explain governance arrangements, describe corporate social responsibility policy, and provide forward looking information for investors.

We will study the causes and consequences of corporate disclosure and financial reporting outcomes. The determinants of financial reporting quality and the factors that influence the quality of information disclosed to investors beyond the financial statements are the main focal points of the proposed project.

While a considerable body of research exists on financial narratives, it has been limited by the methods used for measuring the characteristics of such disclosures. In particular, the need to hand-collect relevant data from firms' annual reports and the subjectivity of textual scoring methods have restricted progress. Recent advances in computing and linguistics provide a basis for undertaking more sophisticated analyses. This project brings together a multidisciplinary team with the aim of developing statistical and computer-based techniques for measuring the properties of UK corporate disclosures. In particular, we will develop new ways of measuring the quality and tone of company narratives using computer-based rankings of annual reports. Both the rankings and linguistic techniques on which these rankings are based will be made available to those seeking information on corporate disclosure policy or wishing to undertake their own analysis of specific narrative statements. We will also use the findings from our analysis as the basis for studying how managers communicate expectations of firm performance to investors and they seek to manipulate investors' impressions of reported results.

The project will also study how the CFIE is shaped by the actions of the financial media. Despite voluminous amounts of press commentary and published investment advice, the informativeness of financial media outputs and their impact on management behaviour have not been studied systematically. We aim to develop methods for measuring the content and informativeness of press commentaries, and then use these measures to examine how the financial media interacts with corporate reporting to determine the quality of the CFIE.

The majority of our analysis will be based on large samples of UK firms listed on the London Stock Exchange. We will use complex statistical modelling procedures to explore relations between key variables and to test our predictions. Our statistical tests will be supported by interviews with key stakeholder groups to help us better understand current financial communication issues and practices. Insights from these interviews will be used to refine our research questions and interpret our results.

The project is expected to yield important insights for business policy makers, accounting standard setting bodies and financial market information regulators. We also expect equity market participants including investors, investment analysts, finance directors, auditors, and firm officials to benefit from the research.


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This page last modified on Tuesday 11 June 2013 at 3:36 pm .