Ownership structure and stock market implications of forward-looking and risk disclosure: Evidence from Asean listed companies

Nguyen, Linh Thi Thuy

Abstract

This study aims to examine the extent of forward-looking and risk disclosure in annual report narratives of listed companies in ASEAN member countries – namely, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – over the period 2009 to 2017, and to explain the role played by ownership structure in explaining that extent. Additionally, the study investigates the value relevance of forward-looking and risk information disclosed by listed firms in ASEAN countries. An automated content analysis is applied to measure the extent of forward-looking and risk disclosure by employing the text search function in QSR NVivo 12 to count the frequency of keywords in annual report narratives.

The study finds empirical evidence about the impact of ownership structure on the level of forward-looking and risk disclosure in ASEAN countries and the non-linear association is more pronounced. Institutional ownership has a U shaped relationship with forward-looking information and a positive association with risk information. This phenomenon is explained by the presence of short-term and long-term institutional investors in ASEAN firms’ ownership structure. Meanwhile, the positive impact on risk disclosure suggests that institutional investors consider risk information as a crucial content in annual reports. In contrast, the levels of forward-looking and risk disclosure reach a maximum at a turning point of foreign ownership, as illustrated by an inverted U shape. This indicates the difference in the impact of foreign and domestic institutional shareholders on corporate disclosure decisions. Foreign institutions, faced with greater information risks of offshore investments, have the incentive to employ disclosure to obtain legitimacy but become entrenched at high levels of shareholdings to avoid excessive proprietary costs. Managerial and government ownership are only significant when explaining the level of risk disclosure and the associations are both U shape. This result partly supports the alignment effect of managerial ownership in promoting corporate public disclosure and the power of the government in inducing their investee firms to pursue transparency.

Ownership structure also affects managers’ propensity for the topics and the tone of disclosure. The study finds a significant impact of ownership on the dissemination of forward-looking information about financial performance and business environment but a negligible effect on non-financial information such as future strategies and business structure. Ownership is not significant in explaining the qualitative attributes of risk disclosures. There is further evidence that managers have the incentive to employ the positive tone of future-related information to impress investors with the company’s prospects. Meanwhile, a non-linear association is observed between institutional/ foreign ownership and the tone of risk disclosure.

The value relevance of forward-looking and risk information in ASEAN listed companies’ annual reports is mainly observed via stock returns and stock volatility. Overall, stock returns after the disclosure of forward-looking information are improved while they are less volatile when more risk information is disclosed. Among the forward-looking topics, strategy-related information is most useful for investors in estimating firm value. Positive future news is associated with higher stock returns whereas stock volatility increases with the negative tone of risk disclosure.

Thesis Type	Thesis
Deposit Date	Sep 23, 2022
Publicly Available Date	May 5, 2023
Public URL	https://uwe-repository.worktribe.com/output/9995248
Award Date	May 5, 2023

Ownership structure and stock market implications of forward-looking and risk disclosure: Evidence from Asean listed companies

Nguyen, Linh Thi Thuy

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