Uesfulness Of Management’s Discussion And Analysis

For all the time, the domestic and foreign scholars generally believe that, Management’s Discussion and Analysis (MD&A) is the most valuable part of the information that firms disclosed. MD&A disclosure system make up for the inherent weaknesses of the traditional accounting statements, other than statements provide investors with incremental information to enhance disclosed by firms the quality of information to met the information and forward-looking investors higher requirements.Since2002, China had been introduced the MD&A information disclosure system, after nearly a decade of development, what the disclosure condition is? Whether MD&A has a certain impact for the investors to make a invest decision? These are the problems that need us to solve. This study is about the usefulness of the information that firms disclosed in the MD&A, and this is related to the existence and reasonable of MD&A.This study investigates whether MD&A disclosures have predictive ability for future firm performance in cases of disproportionate inventory increases. This study addresses two specific questions. First, do explanations for disproportionate inventory increases in MD&A have predictive ability for a firm’s future performance? Second, what are the implications of a firm’s decision to explain disproportionate inventory increases in MD&A for its prospects? My objective is to determine whether the existence, and the favorability, of MD&A disclosures on disproportionate inventory increases contain useful information for financial statement analysis.Using a sample of452manufacturing firms with disproportionate inventory increases, to research the relationship between future performance, sales growth rate and the information about the inventoiy that disclosed in MD&A.I find that the favorability of explanations for inventory changes in MD&A is positively associated with a firm’s profitability and sales growth in the subsequent three years.I also find that future profitability and sales growth of firms that do not explain disproportionate inventory increases in MD&A fall between those of firms with favorable explanations and firms with unfavorable explanations. These results suggest that the existence and the favorability of MD&A inventory disclosures help users interpret disproportionate inventory increases and predict future firm performance.