Abstract
The study assesses corporate forward-looking disclosure by measuring four attributes, namely disclosure quantity, disclosure coverage, disclosure concentration and disclosure quality, through a sample of 34 listed firms in the Bahrain Bourse from 2014 to 2017. The study also investigates the relationship between these attributes and stock return volatility. Regression analysis has been employed with five different models to examine the relationship between the four attributes of corporate forward-looking disclosure and stock return volatility. The main finding of this study agrees with the results of Bravo et al. (2009) who found that the selection of a specific disclosure index could influence crucially the results of the analysis. In addition, stock return volatility has a statistically significant negative association with the three attributes of forward-looking disclosure, namely disclosure quantity, disclosure coverage and disclosure quality. In contrast, it has a non-significant association with the fourth attribute of forward-looking disclosure, disclosure concentration. This study provides a novel contribution to disclosure quality studies by being the first study to examine forward-looking disclosure quality attributes in the Kingdom of Bahrain.
Highlights
Disclosure novels have attracted a great interest in accounting literature
Regression analysis has been employed with five different models to examine the relationship between the four attributes of corporate forward-looking disclosure and stock return volatility
The main finding of this study agrees with the results of Bravo et al (2009) who found that the selection of a specific disclosure index could influence crucially the results of the analysis
Summary
Disclosure novels have attracted a great interest in accounting literature. Theoretical arguments in literature (Lang & Lundholm, 1993; Cormier et al, 2010) suggested that the increase of corporate disclosure, in particular, disclosure quality, has a positive influence on capital markets in different ways, such as it reduces cost of capital, information asymmetry, and stock return volatility (SRV). “Forward-looking information is the class of information that refers to future forecasts and current plans that enable different users to assess a future corporate performance” “The role of corporate forward-looking disclosure in capital markets is today crucial since the economic environment is too dynamic to rely on historical information only” Easley and O’Hara (2004) showed that disclosure quality affects corporate stock volatility and its cost of capital Bushee and Noe (2000) pointed out that more disclosure leads to reduced information asymmetries, decreases surprises about a firm and helps to make its stock price have low volatility. Easley and O’Hara (2004) showed that disclosure quality affects corporate stock volatility and its cost of capital
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