Role of Voluntary Disclosure and Transparency in Financial Reporting

Abstract

This article discusses the role of voluntary disclosure and transparency in Financial Reporting. It identifies various characteristics and discusses transparency and benefits of voluntary disclosure. To enhance competitiveness, firms view disclosure as an opportunity rather than a burden. The higher the level of disclosure the lower is the information risk premium. Low risk premium provides higher valuation. Firms gain from building reputation for transparent reporting, as it eventually results in highermanagement credibility, a higher Price/Earning (P/E) multiple, increased liquidity and a lower cost of capital. This article also highlights risks and costs ssociated with voluntary disclosure.

Keywords: Voluntary Disclosure, Transparency