Illuminating the Murk: The Effect of Business Complexity on Voluntary Disclosure
Journal of Corporate Finance, 2024 [10.1016/j.jcorpfin.2024.102612]
Forthcoming in Journal of Corporate Finance
78 Pages Posted: 18 Jun 2023
Date Written: June 6, 2023
Abstract
Analyzing the complex financial landscape of multi-segment conglomerates requires a more nuanced approach than that required for single-segment firms. This paper reveals that conglomerates strategically enhance their transparency by voluntarily disclosing more information to compensate for their business complexity. This finding is particularly pronounced when there is an increased demand for information from stakeholders and analysts or when the executive pay-performance sensitivity is higher. By strategically embracing transparency, conglomerates transform the complexities inherent in their financial reporting into a catalyst for higher valuation and lower capital costs. Overall, our study demonstrates that multi-segment firms tactically deploy voluntary disclosure to navigate their intricate business environment effectively.
Keywords: Business Complexity, Conglomerates, Voluntary Disclosure, Information Environment
JEL Classification: D82, D83, G14
Suggested Citation: Suggested Citation