Firms are required to provide financial information via the financial statements and the MD&A—a narrative explanation of the financial statements. Our study examines how firms use the MD&A channel when their financial statement channel is inadequate. We proxy for the adequacy of the financial...

Based on behavioral economic and psychological theories, we predict that firms with financial statements that are more dissimilar from their industry peers' or their own past are more likely to draw scrutiny from the SEC. To test this prediction, we first construct measures of financial...