Country-Level Transparency and Country-Specific Risks: Evidence from UK FTSE Listed Firms

• In Event: Country-Level Institutions and Culture

Abstract

Corporate transparency is highly sought after by investors and other interested stakeholders as one of the most fundamental elements of good governance. For example, transparency in financial reporting can promote accountability, lower information asymmetry, and reduce the cost of capital. One way of enhancing transparency is to disclose corporate information on a country-by-country basis in order to provide more accurate insights into a firm’s international activities, especially in parts of the world where there may be important country-specific risks. We investigate the country-level transparency behaviour of the top 200 UK FTSE listed firms by assessing the extent to which firms are disclosing relevant information on a country-by-country basis. We examine two key sections of corporate annual reports: segment information, and principal uncertainties and risks. We hypothesise that firms are less likely to engage in disclosure practices on a country-by-country basis if their principal subsidiaries are operating in countries with high levels of business, economic, and political risks. We posit that such disclosures may invite closer stakeholder scrutiny and impact negatively on capital market perceptions of risk and, hence, corporate value. Consistent with our expectations, we find that there is indeed a significant negative relationship between the level of country-specific risks and country-level transparency.

Authors

• Helen Kang, UNSW Australia

• Sidney J Gray, University of Sydney