Evaluating the impact of the categories of the forward-looking risk disclosure in the company's annual reports pattern
Subject Areas : Accounting & Accountability
Fatemeh Mansouri Mohammad Abadi
1
,
Akram Taftiyan
2
*
,
Mahmoud Moeinadin
3
1 - Department of Accounting, Ya.C., Islamic Azad University, Yazd, Iran
2 - Department of Accounting, Ya.C., Islamic Azad University, Yazd, Iran
3 - Department of Accounting, Ya.C., Islamic Azad University, Yazd, Iran
Keywords: Annual reports, forward-looking risk disclosure, structural equations,
Abstract :
Purpose: Prospective risk disclosure is a valuable component in analysts' earnings forecasts due to its potential impact on firm value. Accordingly, this study examines the influence of categories within the prospective risk disclosure framework using structural equation modeling (SEM).
Methodology: The research was conducted using a questionnaire-based survey, with the study population comprising capital market professionals and academic faculty. Hypothesis testing was performed via structural equation modeling using partial least squares (PLS) software. Confirmatory factor analysis (CFA) based on partial least squares was employed to validate the 29 primary variables and indicators of prospective risk disclosure.
Findings: The SEM results indicate a well-fitted factor structure, demonstrating significant relationships between second-order variables—strategic disclosure, business disclosure, tone of prospective risk disclosure, prospective financial risk disclosure, and prospective non-financial risk disclosure—and their corresponding first-order variables. Furthermore, significant causal relationships were found between the third-order variable soft prospective risk disclosure and second-order variables (strategic disclosure, business disclosure, tone of prospective risk disclosure), as well as between the third-order variable hard prospective risk disclosure and second-order variables (prospective financial risk disclosure, prospective non-financial risk disclosure). Additionally, the analysis of the relationship between the fourth-order variable prospective risk disclosure and third-order variables (soft prospective risk disclosure, hard prospective risk disclosure) revealed significant causal linkages.
Originality: This study not only expands the literature on prospective risk disclosure but also enhances reporting practices, highlighting the significance of the framework’s categories for stakeholders.
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