Voluntary disclosure: Occurrence of financial targets in annual reports of listed Swedish companies and valuation implications

Abstract: This paper extends the literature on companies’ overall voluntary disclosure behavior by examining a specific type of disclosure that can be beneficial to make when it comes to analysts valuing a company. Specifically, this paper investigates financial target disclosure by Swedish firms in annual reports between 2003 and 2007. A score chart reflecting both qualitative and quantitative aspects of disclosed information is used to assess the disclosure level of the companies. The result shows that disclosure level varies between industries and that the qualitative aspects of financial disclosure have improved during the studied period. A residual income valuation model is used to assess the valuation relevance of financial targets. Targets of return on equity and dividend policy are used as input in the valuation model. The fundamental values obtained, are significantly higher than the market values.