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Illuminating the murk: The effect of business complexity on voluntary disclosure

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  • Farzamfar, Arshia
  • Foroughi, Pouyan
  • Hamisheh Bahar, Hosein
  • Ng, Lilian

Abstract

Analyzing the complex financial landscape of multi-segment conglomerates requires a more nuanced approach than that required for single-segment firms. This paper reveals that conglomerates strategically enhance their transparency by voluntarily disclosing more information to compensate for their business complexity. This finding is particularly pronounced when there is an increased demand for information from stakeholders and analysts or when the executive pay-performance sensitivity is higher. By strategically embracing transparency, conglomerates transform the complexities inherent in their financial reporting into a catalyst for higher valuation and lower capital costs. Overall, our study demonstrates that multi-segment firms tactically deploy voluntary disclosure to navigate their intricate business environment effectively.

Suggested Citation

  • Farzamfar, Arshia & Foroughi, Pouyan & Hamisheh Bahar, Hosein & Ng, Lilian, 2024. "Illuminating the murk: The effect of business complexity on voluntary disclosure," Journal of Corporate Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:corfin:v:87:y:2024:i:c:s0929119924000749
    DOI: 10.1016/j.jcorpfin.2024.102612
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    More about this item

    Keywords

    Business complexity; Conglomerates; Voluntary disclosure; Information environment;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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