A Topic Model for 10-K Management Disclosures

We investigate the topics discussed in the Management's Discussion and Analysis (MD&A) section of 10-K filings from January 1994 to December 2018. In our modeling approach, we elicit the MD&A topics by clustering words around a set of anchor words that broadly define a potential topic. From the topics, we extract two hidden loading series from the MD&As - a measure of topic prevalence and a measure of topic sentiment. The results are three-fold. First, the topics we find are intelligible and distinctive but are potentially multi-modal, which may explain why classical topic models applied to 10-K filings often lack interpretability. Second, topic prevalence and sentiment tend to follow trends which, by and large, can be rationalized historically. Third, sentiment affects topics heterogeneously, i.e., in topic-specific ways. Adding to the extant document-level techniques, our study demonstrates the potential benefits of using a nuanced topic-level approach to analyze the MD&A.