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Forward-looking disclosure and corporate reputation as mechanisms to reduce stock return volatility

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  • Bravo, Francisco

Abstract

The purpose of this paper is to investigate whether forward-looking disclosures and corporate reputation lead to a reduction in stock return volatility. This study measures financial forward-looking information, by conducting a content analysis of annual reports for a sample of US companies. Since every annual report was manually examined and coded, the study is therefore restricted to the companies listed in Standard and Poor's 100. Results show that financial forward-looking information has significant effects on capital markets. This study contributes to the current literature on voluntary disclosure, by examining the link between the disclosure of financial forward-looking information and stock return volatility. Since stock volatility is linked to information asymmetries and to a higher risk of a company, this analysis implies certain practical implications for both managers and regulators regarding the importance of specific disclosure strategy in capital markets. Moreover, results indicate that forward-looking information disclosed by companies of a higher reputation has a greater effect on stock return volatility. This is the first study that demonstrates that corporate reputation moderates the effects of forward-looking information in capital markets. In addition to the level of disclosed information, the interpretation and the effectiveness of forward-looking information depends on the reputation of a company.

Suggested Citation

  • Bravo, Francisco, 2016. "Forward-looking disclosure and corporate reputation as mechanisms to reduce stock return volatility," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 122-131.
    • Handle: RePEc:eee:spacre:v:19:y:2016:i:1:p:122-131
    DOI: 10.1016/j.rcsar.2015.03.001
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    2. José Carlos Hoelz & Walter Bataglia, 2022. "Corporate Reputation and Strategic Alliance Performance," Corporate Reputation Review, Palgrave Macmillan, vol. 25(3), pages 161-175, August.
    3. Nidhi Sharma Sahore & Anshul Verma, 2017. "Corporate Disclosures and Financial Performance of Selected Indian Manufacturing and Non- Manufacturing Companies," Accounting and Finance Research, Sciedu Press, vol. 6(1), pages 119-119, February.
    4. Chiara Mio & Pier Luigi Marchini & Alice Medioli, 2020. "Forward‐looking information in integrated reports: Insights from “best in class”," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2212-2224, September.
    5. Isadora Sánchez‐Torné & Juan Carlos Morán‐Álvarez & José A. Pérez‐López, 2020. "The importance of corporate social responsibility in achieving high corporate reputation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(6), pages 2692-2700, November.
    6. Innocent Shau & William Gomera, 2022. "Effects of the information gap in the stock market: A case of Dar Es salaam Stock Exchange," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(9), pages 174-183, December.
    7. Zhang, Junru & Zheng, Chen & Shan, Yuan George, 2024. "What accounts for the effect of sustainability engagement on stock price crash risk during the COVID-19 pandemic—Agency theory or legitimacy theory?," International Review of Financial Analysis, Elsevier, vol. 93(C).
    8. Rayenda K. Brahmana & Hui‐Wei You & Evan Lau, 2022. "Does reputation matter for firm risk in developing country?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2110-2123, April.
    9. Andrea Giacomelli, 2022. "Mark to Target Information: idiosyncratic forward-looking information and its use to define primary ESG indicators," Working Papers 2022:08, Department of Economics, University of Venice "Ca' Foscari".
    10. Mechelli, Alessandro & Cimini, Riccardo & Mazzocchetti, Francesca, 2017. "The usefulness of the business model disclosure for investors’ judgements in financial entities. A European study," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 20(1), pages 1-12.

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    More about this item

    Keywords

    Forward-looking information; Corporate reputation; Stock return volatility; Content analysis; Disclosure indices; Información previsional; Reputación corporativa; Volatilidad de las acciones; Análisis de contenido; Índices de divulgación;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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