Fad or future? Automated analysis of financial text and its implications for corporate reporting

This paper describes the current state of natural language processing (NLP) as it applies to corporate reporting. We document dramatic increases in the quantity of verbal content that is an integral part of company reporting packages, as well as the evolution of text analytic approaches being employed to analyse this content. We provide intuitive descriptions of the leading analytic approaches applied in the academic accounting and finance literatures. This discussion includes key word searches and counts, attribute dictionaries, naive Bayesian classification, cosine similarity, and latent Dirichlet allocation. We also discuss how increasing interest in NLP processing of the corporate reporting package could and should influence financial reporting regulation and note that textual analysis is currently more of an afterthought, if it is even considered. Opportunities for improving the usefulness of NLP processing are discussed, as well as possible impediments.