Financial materiality and corporate risk: Evidence from an Instrumental Variables (IV) design

Henrique Castro Martins

Finance Research Letters, 2023, vol. 58, issue PB

Abstract: This article investigates how the disclosure of financially material information relates to corporate risk. Studying a sample of 18,207 firm-year observations from 27 countries and using the SASB materiality framework, I find evidence that firms with higher disclosure scores of financially material items show lower standard deviation of stock returns and lower idiosyncratic risk. Moreover, I explore an instrumental variables (IV) design and find that the disclosure of financially material items reduces total risk but not idiosyncratic risk. This research contributes to the current debate on whether the disclosure of material items affects corporate prospects.

Keywords: SASB; Financial materiality; Corporate risk; Instrumental variables (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pb:s154461232300805x

DOI: 10.1016/j.frl.2023.104433

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