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

Francisco Bravo

Revista de Contabilidad - Spanish Accounting Review, 2016, vol. 19, issue 1, 122-131

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.

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 (search for similar items in EconPapers)
JEL-codes: G14 G19 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:spacre:v:19:y:2016:i:1:p:122-131

DOI: 10.1016/j.rcsar.2015.03.001

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