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

See all articles by Arshia Farzamfar

Arshia Farzamfar

York University - Schulich School of Business

Pouyan Foroughi

York University - Schulich School of Business

Hosein Hamisheh Bahar

York University - Schulich School of Business

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

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

Farzamfar, Arshia and Foroughi, Pouyan and Hamisheh Bahar, Hosein and Ng, Lilian, Illuminating the Murk: The Effect of Business Complexity on Voluntary Disclosure (June 6, 2023). Journal of Corporate Finance, 2024 [10.1016/j.jcorpfin.2024.102612], Forthcoming in Journal of Corporate Finance, Available at SSRN: https://ssrn.com/abstract=4471249 or http://dx.doi.org/10.1016/j.jcorpfin.2024.102612

Arshia Farzamfar

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Pouyan Foroughi

York University - Schulich School of Business ( email )

111 Ian MacDonald Blvd
North York, Ontario M3J 1P3
Canada

Hosein Hamisheh Bahar (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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