The Information Content of the President's Letter to Shareholders

Numerous studies have examined the information content of financial statements' line items such as earnings, earnings components, and financial ratios. Most of these studies examined the cross-sectional association between firm-specific stock returns and one or more financial statements' line items. Surprisingly, the information contained in the narrative portions of the annual report — the president's letter to the firm's shareholders and the Management Discussion and Analysis (MD&A) — has not received much attention.