Toward an understanding of year-over-year changes in municipal management discussion and analysis disclosures

Using a unique setting in which the standard setter (the Governmental Accounting Standards Board) provides guidance on the content of Management Discussion and Analysis (MD&A) disclosures, we investigate the determinants of content changes in municipal government MD&A. We do so in terms of economic changes, turnover, and regulatory characteristics. We use a sample of 1142 municipal MD&A disclosures from fiscal year 2011 to 2015 to calculate a difference score based on the degree to which municipal MD&As change from the previous year. Our empirical analysis highlights that MD&A content changes vary directly with changes in the unemployment rate, fund balance from governmental funds, and auditor turnover. Furthermore, we find evidence that MD&A content changes might be more likely in states without formal GAAP mandates, possibly implying that municipal managers increase transparency by complementing reported financial information with additional qualitative commentary in narrative disclosures when states do not centralize fiscal control over municipalities. Overall, our analysis provides insight on the use of qualitative disclosure by municipal managers, and highlights a need for enhanced commentary on certain items (such as debt and capital expenditures) in order to create greater credibility with and accountability to citizens and other financial statement users. This research is especially timely as GASB re-examines the disclosure mandates of GASB 34.