Enhanced Business Reporting : Value Relevance and Determinants of Valuation-Related Disclosures

Purpose: Enhanced Business Reporting (EBR) seeks to address the information needs of investors when making company valuations for investment decisions. The paper analyses the relevance for market valuation of EBR disclosures that are directly related to firm valuation (Value Based Reporting, VBR).Design/methodology/approach: Data are hand collected from annual reports of German publicly listed companies over 5 years. The content analysis is based on the valuation-related disclosure framework of the German Schmalenbach Society of Business Administration. A 2SLS approach accounts for potential endogeneity.Findings: Share-based compensation, leverage, corporate size, and share volatility are significant determinants of VBR. The level of VBR is significantly associated with market values and provides additional market value explanatory power, indicating its relevance to investors in the process of valuation and decision making. Also, the relevance of book value and earnings for explaining market values increases for firms with better VBR. Findings are robust to the exclusion of banks and assurance companies and to alternative model and variable specifications.Research limitations/implications: The research contributes to the literature on voluntary disclosures by testing an EBR framework explicitly derived from valuation theory. The results provide indirect evidence of investors' use of respective valuation techniques in decision making. A contribution is made to the value relevance literature by showing that valuation-related disclosures constitute a suitable proxy for ‘other information' in the Ohlson (1995) model. Such disclosures complement traditional accounting metrics, i.e. book value and earnings, as basis for valuations. Potential caveats relate to the content analysis of annual reports and the endogeneity of voluntary disclosures.Originality/value: This paper informs the debate on further developments of EBR in helping to identify important components thereof