Is forward-looking financial disclosure really informative? Evidence from UK narrative statements

Hassanein, A and Hussainey, K 2015, 'Is forward-looking financial disclosure really informative? Evidence from UK narrative statements' , International Review of Financial Analysis, 41 , pp. 52-61.

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Forward-looking financial disclosure (FLFD) is potentially uninformative if it does not change from the previous year, especially after a significant change in firm performance. This study aims to examine whether and to what extent FLFD is changed in response to changes in firm performance. Then, it investigates the effect of such change in FLFD on firm value. The study uses a sample of UK narrative statements over the period from 2005 to 2011. It finds an association between change in FLFD and change in firm earnings performance. However, it finds weak evidence that firms with larger changes in earnings performance are likely to change their FLFD more than those with smaller performance changes. In addition, when we distinguish between well-performing and poorly performing firms, it finds that the change in FLFD is more positively associated with poorly performing firms compared to well-performing firms. Finally, the change in FLFD has no effect on the value of well-performing firms, while, it negatively affects poorly performing firms. The results suggest that forward-looking financial information in UK narratives contains some relevant information about firm performance. However, it neither affects the value of well-performing firms nor enhances investors' valuation of poorly performing firms.

Item Type: Article
Schools: Schools > Salford Business School
Journal or Publication Title: International Review of Financial Analysis
Publisher: Elsevier
ISSN: 1057-5219
Related URLs:
Funders: Ahmed Hassanein
Depositing User: Dr Ahmed Hassanein
Date Deposited: 07 Mar 2016 11:26
Last Modified: 15 Feb 2022 20:23

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