Abstract
The demand for enhanced corporate reporting has surged amidst debates as to its benefits. In 2013, the United Kingdom (U.K.) mandated Strategic Reporting (SR) for corporations, replacing Enhanced Business Reporting (EBR) (a form of enhanced Management Discussion and Analysis (MD&A)). We identify factors associated with high-quality SR, studying its economic impact. We also examine the economic impact of changes from EBR to SR. Using proprietary data from PwC U.K., we find corporate governance, financial resources, external monitoring mechanisms and CSR performance are key drivers for high-quality SR. Regarding economic impact, we find a positive association between the disclosure quality of Strategic Reports and capital market benefits, including higher liquidity, lower cost of capital, and more accurate, less dispersed analysts’ forecasts. The effects of higher liquidity and lower cost of capital are more pronounced in the post- compared to pre-SR period, suggesting SR enables more effective capital market communication than EBR.
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