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

Hassanein, A; Hussainey, K

Abstract

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.

Citation

Hassanein, A., & Hussainey, K. (2015). Is forward-looking financial disclosure really informative? Evidence from UK narrative statements. International Review of Financial Analysis, 41, 52-61. https://doi.org/10.1016/j.irfa.2015.05.025

• Journal Article Type: Article
• Acceptance Date: May 31, 2015
• Online Publication Date: Jun 5, 2015
• Publication Date: Oct 1, 2015
• Deposit Date: Mar 7, 2016
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Volume: 41
• Pages: 52-61
• DOI: https://doi.org/10.1016/j.irfa.2015.05.025
• Publisher URL: http://dx.doi.org/10.1016/j.irfa.2015.05.025
• Related Public URLs: http://www.sciencedirect.com/science/article/pii/S1057521915001076#
• Additional Information: Funders : Ahmed Hassanein; Projects : Is forward-looking financial disclosure really informative? Evidence from UK narrative statements