Is forward-looking financial disclosure really informative? Evidence from UK narrative statements

By Ahmed Hassanein, K. Hussainey. 2015

139 citations recorded by the source corpus.

Forward-looking financial disclosure (FLFD) is potentially uninformative if it does not change from the previous year, especially after a significant change in firm performance. This study aims to examine whether and to what extent FLFD is changed in response to changes in firm performance. Then, it investigates the effect of such change in FLFD on firm value. The study uses a sample of UK narrative statements over the period from 2005 to 2011. It finds an association between change in FLFD and change in firm earnings performance. However, it finds weak evidence that firms with larger changes in earnings performance are likely to change their FLFD more than those with smaller performance changes. In addition, when we distinguish between well-performing and poorly performing firms, it finds that the change in FLFD is more positively associated with poorly performing firms compared to well-performing firms. Finally, the change in FLFD has no effect on the value of well-performing firms, while, it negatively affects poorly performing firms. The results suggest that forward-looking financial information in UK narratives contains some relevant information about firm performance. However, it neither affects the value of well-performing firms nor enhances investors' valuation of poorly performing firms.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/ebe90ae406431a438de86b4276f3b07eb37d05a9

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Citations in the corpus

Determinants of CSR disclosure quantity and quality: Evidence from non-financial listed firms in Saudi Arabia (2016, methodology): “Following prior research (for example, Elshandidy et al , 2013; Elzahar et al , 2015; Hassanein and Hussainey, 2015), ﬁ nancial ﬁ rms are excluded.”
Determinants of forward-looking disclosures in integrated reporting (2018, background): “Another argument supporting this relationship is the tendency of highly performing companies to present increased discussion and analysis of their favorable results to investors (Hassanein and Hussainey, 2015).”