An Experimental Evaluation of the Effect of Voluntary Disclosure of Non-financial Performance Indicators and Assurance on this Information on Stock Price Estimates and Earnings Forecasts

SUMMARY: This study examines whether the voluntary provision of non-financial performance indicators (as part of the Balanced Scorecard framework) and assurance on this information impacts on stock price estimates and earnings forecasts in an experimental setting. A controlled experiment was performed on sophisticated users of financial statements. They were provided with a case study containing excerpts from a fictitious company's annual report. In this case study the variables were manipulated in a 2 (positive and negative non-financial performance indicators) x 2 (assurance and no assurance) + 1 (base case) between-subjects design. Participants were then asked to assess whether the company's stock price estimates and earnings forecasts would increase, decrease or stay the same based on the information provided. It was found that the non-financial performance indicators had a very significant effect in the expected directions on both stock price estimates and earnings forecasts. Assurance had a significant effect on both stock price estimates and earnings forecasts but only when the non-financial information was positive, suggesting that the value of assurance is context specific.