RIVolutionising Voluntary Disclosure: A Conceptual Study on the Value Relevance of Voluntary Disclosure for Listed Emerging Growth Companies

University essay from Handelshögskolan i Stockholm/Institutionen för redovisning och finansiering

Abstract: This study uses a mixed method approach to analyse how voluntary disclosure contributes to conceptually explain the valuation gap between fundamental accounting numbers and the stock market price for Listed Emerging Growth Companies (LEGCs). This is done by taking a deduced valuation model perspective using the Forecast Issues underlying the Residual Income Valuation model as a theoretical lens to analyse voluntary disclosure (Gray & Skogsvik, 2004). Although the quantitative analyses do not yield insightful results by themselves, the qualitative analysis allows to resolve the forecasting of the expected future book returns on owners' equity (Forecast Issue 1) and the forecasting of the expected relative goodwill/ badwill of owners' equity at the horizon point in time (Forecast Issue 2) on a short to medium term. This is highlighted by three key recurring themes that LEGCs disclose to explain their future value generation potential: Operating Leverage, Financial Myopia, and Supplemental Performance Reporting. This thesis is meant to facilitate further research on the topic by implementing a new approach to voluntary disclosure analysis, and to create interest in the research area of an upcoming type of firms, LEGCs.

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