DOES VOLUNTARY DISCLOSURE LEVEL AFFECT THE VALUE RELEVANCE OF ACCOUNTING INFORMATION?

This paper seeks to explore whether voluntary disclosure level affects the value relevance of accounting information from an investor’s perspective on Kuwait Stock Exchange (KSE). Based on the assumption that an increased focus on the informational needs of investors should increase the value relevance of the information contained in financial statements we expect that value relevance will increase along with increases in the level of voluntary disclosure. As a consequence, we expect that greater voluntary disclosure levels among companies listed on the KSE will be associated with greater value relevance in earnings and book value information for investors. The results show the average level of voluntary disclosure for KSE-listed firms in 2007 was 22%, ranging from 2% to 63%. The results for the price and returns models provide evidence that earnings and book values are significant factors in the valuation of KSE-listed firms in 2007 period. However, the results show that voluntary disclosure levels had insignificant influence on the value relevance of earnings and book values. The insignificant association found could be due in part to the large proportion of naïve investors in the KSE and could be reflective of their incapability to incorporate voluntary disclosure information in their valuations of KSE firms.