Do forward-looking narratives affect investors’ valuation of UK FTSE all-shares firms?

Ahmed Hassanein (), Alaa Zalata () and Khaled Hussainey ()
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Ahmed Hassanein: Gulf University for Science and Technology (GUST)
Alaa Zalata: Mansoura University

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 2, No 6, 493-519

Abstract: Abstract Narrative reporting is an important avenue for investors to know more about a company from the eyes of its board of directors. This study aims to examine the impact of forward-looking disclosures on the values of UK FTSE all-shares non-financial firms. It uses a sample of annual report narratives from 2005 to 2014 to determine that the values of UK FTSE all-shares firms are positively influenced by the disclosure of forward-looking information. Besides, after distinguishing between high and low-performing firms, the study finds that forward-looking disclosures have no effect on the values of high-performing firms, though they positively enhance investors’ valuation of low-performing firms. Furthermore, the study concludes that when UK firms are divided based on the size of the audit firm (Big 4 vs. non-Big 4 auditors), forward-looking disclosures only positively affect the values of FTSE all-shares firms that are audited by one of the Big 4 auditing firms. Therefore, the results suggest that forward-looking information in UK narrative reporting statements is seen as credible for firms that are audited by a large auditor and/or are low-performing.

Keywords: Narrative reporting; Forward-looking information; Firm value; UK (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s11156-018-0717-6

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