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

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

Journal of Corporate Finance, 2024, vol. 87, issue C

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.

Keywords: Business complexity; Conglomerates; Voluntary disclosure; Information environment (search for similar items in EconPapers)
JEL-codes: D82 D83 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:87:y:2024:i:c:s0929119924000749

DOI: 10.1016/j.jcorpfin.2024.102612

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