Disaggregation in Mandatory Risk Disclosure, Audit Conservatism and Implied Cost of Equity Capital

Posted: 7 Mar 2014

See all articles by Ahmed Al-Hadi

Ahmed Al-Hadi

Curtin University - School of Accounting; CBFS

Grantley Taylor

Curtin University - School of Accounting

Mahmud Hossain

King Fahd University of Petroleum & Minerals - Department of Accounting and MIS

Date Written: March 5, 2014

Abstract

This research investigates the association between discretionary disaggregation in mandatory risk disclosures, audit conservatism and the implied cost of capital (ICOE). Based on a sample of 141 financial firms from six GCC countries over the 2007-2011 period, we find that the ICOE is significantly negatively associated with discretionary disaggregation in mandatory market risk disclosures after controlling for firm-specific characteristics and country-specific institutional factors. Further, our interaction term between audit conservatism and firms’ disaggregation in mandatory risk disclosures is negatively associated with the ICOE, particularly for small to medium size firms. These findings are robust to a series of sensitivity tests. Collectively, these results demonstrate that more discretionary disaggregation in risk disclosure provides more private information to investors.

Keywords: Disaggregation disclosures, Discretionary disclosures, Mandatory Market Risk Disclosures, Audit Conservatism, Implied Cost of Capital (ICOE)

JEL Classification: M40, M41, M48

Suggested Citation

Al-Hadi, Ahmed and Taylor, Grantley and Hossain, Mahmud, Disaggregation in Mandatory Risk Disclosure, Audit Conservatism and Implied Cost of Equity Capital (March 5, 2014). Available at SSRN: https://ssrn.com/abstract=2404818

Ahmed Al-Hadi (Contact Author)

Curtin University - School of Accounting ( email )

Australia

CBFS ( email )

Ruwi, 112
Oman
98999651 (Phone)

Grantley Taylor

Curtin University - School of Accounting ( email )

Australia

Mahmud Hossain

King Fahd University of Petroleum & Minerals - Department of Accounting and MIS ( email )

Department of Accounting and MIS
College of Industrial Management. KFUPM Box 5076
Dhahran, 31261
Saudi Arabia
+966 13 860 8496 (Phone)
+966 13 860 3489 (Fax)

HOME PAGE: http://www4.kfupm.edu.sa/cim/acct_mis.html

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