Value relevance of discretionary and non-discretionary disclosure across reporting environments

Abstract

Orientation: Corporate disclosures have become increasingly important in financial reporting, leading to greater interest in understanding the value relevance of discretionary and non-discretionary disclosures. While prior studies often treat these disclosures as competing, this study explores whether they are complementary and how the reporting environment affects their value relevance. Research purpose: This study examines the joint and separate value relevance of discretionary and non-discretionary disclosures in emerging and developed economies. Motivation for the study: Inconsistent findings in the literature about the value relevance of these disclosures motivate this study. Previous research often analyses them in isolation, overlooking their potential complementary effects and the role of the reporting environment. Research approach/design and method: A quantitative approach was used, with a sample of firms from two emerging and two developed economies. The generalised method of moments (GMM) was employed to assess the value relevance of discretionary and non-discretionary disclosures, both jointly and separately. Main findings: Both discretionary and non-discretionary disclosures are value relevant when analysed separately and jointly. However, the value relevance of discretionary disclosures diminishes when considering the firm’s reporting environment, while non-discretionary disclosures remain consistent. Practical/managerial implications: Managers and financial analysts should incorporate both types of disclosures into their forecasting models, as they provide complementary insights into a firm’s financial health. Contribution/value-add: This study provides a nuanced understanding of the joint and separate value relevance of discretionary and non-discretionary disclosures and highlights the impact of the reporting environment, especially in emerging economies.

Keywords

• discretionary disclosure
• non-discretionary disclosure
• value relevance
• reporting environment
• content analysis
• emerging and developed economies