Corporate disclosure and firm value: do audit quality and foreign listing matter?

Abstract

Purpose

This paper analyzed the effect of voluntary corporate disclosure on firm value and how audit quality and cross-border stock market listing moderate this relationship.

Design/methodology/approach

The paper analyzed S&P BSE index constituents’ 90 Indian enterprises for 2017–2019. The India Disclosure Index Report was used to fetch the voluntary disclosure scores. Further, the study was conducted in two parts using six different panel-data regression models in the framework of legitimacy, agency, signaling and market segmentation theory. First, the study investigated the direct impact of voluntary disclosures on return on assets (ROA) and Tobin’s Q. Second, the moderating effect of the “Big 4” was tested. Third, the paper also examined the moderating role of “cross-border stock market listing” in the direction of voluntary disclosure-firm value relationships.

Findings

Primarily, the results postulate a significant positive impact of voluntary disclosures on ROA and Tobin’s Q. A higher voluntary disclosure leads to a higher ROA and Tobin’s Q for firms. Moreover, the improvement effect of such disclosures on ROA and Tobin’s Q is more pronounced for companies “listed abroad” and audited by “Big 4.”

Research limitations/implications

The findings will enhance managers’ learning about the financial impact of voluntary disclosures. The choice of a “Big 4” and “Cross border stock market listing” indicates firms’ future positive perspectives, strengthening investor trust in the market.

Social implications

The results suggest that companies’ potential auditing, agency and litigation issues could be addressed through fairness in the information content of voluntary disclosures.

Originality/value

This examination presents a firm valuation model in which voluntary disclosure tackles an ethical issue, the resolution of which depends on the “audit quality” and “cross-border stock market listing.”

Citation

Kumar, P. (2024), "Corporate disclosure and firm value: do audit quality and foreign listing matter?", Journal of Accounting & Organizational Change, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAOC-04-2023-0072