Linkage between strategy and financial performance disclosure in annual reports: A new reporting path for organizational learning

We examine the reporting practice of linkage between strategy disclosures (management discussion of firm strategy and the business model) and financial performance disclosures in annual reports as a path for organizational learning. For identification, we use the UK Company Law Amendment mandating a Strategic Report as a separate section of the annual report so that strategy disclosures provide sufficient context for financial statements. We confirm that the linkage between strategy and performance disclosures in annual reports increases incrementally after the amendment for firms that are more strongly affected by the Company Law Amendment. For these firms, we document an incremental rise in measures associated with organizational learning (e.g., measures of organizational changes and workforce engagement). Our study has important policy implications for the structure of textual disclosure in annual reports.