Economic consequences of key performance indicators’ disclosure quality

Elzahar, H., Hussainey, K., Mazzi, F. and Tsalavoutas, I. (2015) Economic consequences of key performance indicators’ disclosure quality. International Review of Financial Analysis, 39, pp. 96-112. (doi: 10.1016/j.irfa.2015.03.005)

Abstract

Starting from 2006, UK listed companies are required to analyse their performance by using key performance indicators (KPIs) in specific sections of their annual reports and the UK Accounting Standard Board (ASB) provides companies with guidelines for the best practice regarding KPI disclosure. Motivated by the possible effects of the KPI disclosure quality, we examine their potential economic consequences for a sample of UK listed firms for the period 2006 to 2010. Our sample consists of 448 firm-year observations. We first develop a measure for the quality of the KPI disclosure based on the ASB's guidelines. We then test the economic consequences of financial and nonfinancial KPI disclosure quality both separately and combined into one variable. Our findings, after conducting various sensitivity tests, suggest that only the disclosure quality of financial KPIs matters. We find a significantly negative (weakly positive) relationship between disclosure quality of financial KPIs and the implied cost of capital (firm value). These results inform regulatory bodies as well as the academic literature about the potential economic consequences of this type of disclosure.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Tsalavoutas, Professor Yannis
• Authors: Elzahar, H., Hussainey, K., Mazzi, F., and Tsalavoutas, I.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: International Review of Financial Analysis
• Publisher: Elsevier B.V.
• ISSN: 1057-5219
• ISSN (Online): 1873-8079
• Copyright Holders: Copyright © 2015 Elsevier Inc.
• First Published: First published in International Review of Financial Analysis 39:96-112
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher