Why Do Firms Voluntarily Disclosure Information?

Why Do Firms Voluntarily Disclosure Information?  Essay example
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Finance & Accounting
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Since modern corporate governance principles give first priority to shareholder values, today firms tend to disclose their financial as well as other information in annual report…

Introduction

Economic theories propose that it is better for firms to provide additional information to investors and financial analysts, because the voluntary disclosure assists investors and shareholders to analyse the firm and thereby to estimate future rate of returns on their investment. This paper will discuss why modern firms voluntarily disclose their information. Voluntary disclosure of information While analysing modern corporate culture, it seems that organisations voluntarily disclose more information in their annual reports than what is actually required to comply with the basic financial and accounting regulations. Firms voluntarily disclose three types of information such as strategic, non-financial, and financial information. As per the logical conclusions made by Kim, better informed shareholders were satisfied with less disclosure whereas uninformed shareholders preferred more disclosure (as cited in Cataldo, 2003, p.68). Thus, Kim linked voluntarily disclosure of information with shareholder interests. According to Williams (2008), nowadays firms engage in operations that are not captured by accounting process but have an impact on the firm’s profitability; therefore, such activities of firms have considerable significance in the sense that they may cause changes to investment decisions. ...
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