The Effect voluntary risk disclosure, corporate governance and proprietary cost on share price anticipation of future earnings:evidence from MENA emerging markets
Year: 2015
Type: dissertation
Abstract: This study has three main purposes: (i) to examine whether voluntary risk disclosure in the annual reports contains value-relevant information to predict future earnings, to address (ii) how governance structures interact with risk disclosure practice to impact share price informativeness about future earnings and (iii) to examine whether proprietary costs have a moderating effect on the value relevance of risk disclosures’ news in future earnings. This study focuses on corporate annual reports as managers and researchers alike have recently recognized the importance of narrative risk disclosures. The reason for this growing interest is that information on risks and uncertainties in corporate business is becoming crucial for well-informed investors and for an accurate corporate valuation and investment decision. We used a content analysis approach to measure the amount of narrative risk disclosure across different countries in the MENA region. As for share price informativeness with respect to future earnings growth, we relied on Collins et al. (1994) model that became a benchmark for many value relevance studies. We used a large-scale sample firms from MENA emerging markets corresponding to a three year period: from 2007 to 2009. We retained 809; 785 and 789 firm years-observations for our three regression models and provided regression estimates based on fixed effects and pooled OLS regressions. This study offers several interesting results. First, we find a positive relationship between voluntary risk information and the market’s ability to anticipate two-years ahead of future earnings growth. The positive association provides us with the first empirical evidence of the value relevance of voluntary risk disclosure in annual reports. Second, we find that risk disclosure associated with good board structure (large size and high proportion of non-executive directors) enhances share price anticipation of future earnings. In contrast, ownership structure as examined through the level of ownership concentration, management and institutional ownership decreases the association between risk disclosure and share price anticipation of future earnings. Finally, we notice that the level of proprietary costs moderates the perceived relevance of risk information, thereby making investors rely on other sources of information in forecasting future earnings change. These results suggest that information about corporate governance and product market competition is likely to shape the perceived relevance of narrative risk disclosure in annual reports.
DOI: 10.60713/pist-195185
Authors: Moumen, Nejia, Ben Othman, Hakim
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W6901689688