The Analysis Of Strategic Commentary: Cross-Sectional And Longitudinal Large-Scale Narrative Analaysis

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Understanding an entity's competitive environment and its strategy for operating successfully in that environment lies at the heart of financial analysis, investment decision-making and management control (Palepu et al. 2010, Simons 2010). However, provision of strategy-related commentary by stock exchange-listed firms has traditionally been voluntary. As a result, disclosure has been patchy and limited in scope, with management often citing proprietary costs for the lack of detail. The absence of such information, however, 3 can restrict the usefulness of accounting data due to a lack of context in which to evaluate results. In response, professional bodies and policymakers have started to promote non-binding guidance on strategy-related disclosures (CFA Institute 2006, International Accounting Standards Board 2010). A House of Commons Treasury Committee review of UK governance and executive pay practices in 2009 highlighted concern over the lack of clear strategic narrative provided by senior management. In response, UK Company Law was amended to require companies with a premium listing on the London Stock Exchange (LSE) to publish a strategic report as part of their annual disclosure to shareholders (effective for fiscal years beginning on or after 30 September 2013). This requirement extends the ground-breaking obligation introduced in 2010 for LSE Main Market firms to incorporate in their annual report information on strategic objectives and business model (Financial Reporting Council 2010, para C.1.2). The UK is currently the only globally recognised financial market that requires listed companies to disclose information on strategy and as such it provides a unique setting in which to study the nature, drivers and consequences of strategy-focused narrative disclosures.