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Assessing the Value Relevance of Mandatory Business Model Disclosures

Purpose – Extra-financial information and narrative reporting has long been portrayed as a way of enhancing the informativeness and usefulness of traditional financial reporting. Numerous more or less regulated reporting initiatives have seen the light in the last 25 years, and the latest examples are offered by the Strategic Report of the UK Companies Act Regulations 2013 and the requirements of the European Directive 2014/95 on non-financial information (NFI). The latter place Business Model (BM) reporting prominently on regulators’ agenda as a first mandatory requirement for large companies to disclose information about their BM in annual reporting.

In the light of these recent regulatory requirements, this paper aims at investigating

1)      what, i.e., how much companies disclose about their BM under such a mandatory regime

2)      if this information is deemed relevant by its users. Hence, this study aims at evaluating the effectiveness value relevance of BM disclosures under the mandatory disclosure regime imposed on large companies in the UK – representing a pioneering attempt in this area.

Findings – The empirical results show notably low levels of BM disclosure (i.e., low number of value drivers disclosed on average) and no significant association between BM disclosure and share prices. Moreover, BM disclosure does not show any moderating effects on book value and earnings.

Findings are further enforced by the non-value relevance of the slightly higher levels of disclosure on a BM canvas level. These results can in part be attributed to the proprietary costs that companies have to bear when BM related information is disclosed. Another reason can be that they (and their stakeholders) may be unaware of the concept of BM itself, perhaps due to its intrinsic ambiguity.

Such results are highly relevant for informing the policy-making process of BM and extra-financial disclosures and calls for future research about the coherence of BM disclosure as well as the construction of a reporting framework for coherent and relevant BM disclosures.

By: Stefan Schaper (Department of Management, Aarhus University), Christian Nielsen (Aalborg University – Business Model Design Center), and Lorenzo Simoni (University of Florence – Department of Economics and Management)

Read the entire SSRN paper here

By |2018-11-06T14:15:39+00:00November 6th, 2018|CSR, Firm Value, Governance, Law|0 Comments

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