Dataset to determine the differential impact of discretionary and non-discretionary disclosure on firm value in emerging and developed markets

The objective of this dataset is to investigate the role of discretionary and non-discretionary disclosures in financial reports across both emerging and developed markets. It seeks to assess the significance of these disclosures in varying reporting environments and the extent to which their importance holds up across these markets. Two key hypotheses are proposed: (1) discretionary and non-discretionary disclosures are individually and collectively significant in both emerging and developed economies, and (2) the level or magnitude of these disclosures is influenced by a firm's reporting environment.

Discretionary disclosure is evaluated through the tone of language used in the Chairman’s letters in annual reports, employing Diction measures such as optimism, certainty, activity, realism, and commonality. Non-discretionary disclosure, on the other hand, is measured using book value per share and earnings per share. The dataset also includes variables representing the reporting environment, such as ownership structure, economic conditions, and regulatory frameworks. Control factors like firm size, age, and risk are also incorporated.

The findings reveal that the use of optimistic language in Chairman’s letters ranks highest across all reporting environments, followed by language emphasizing realism. This suggests that discretionary disclosures are often geared towards projecting a positive outlook on the company by including tangible and easily recognizable facts. Moreover, the comparison of emerging and developed markets shows distinct differences in reporting environments: emerging markets tend to exhibit weaker regulatory frameworks, lower rule of law, and less economic openness, yet higher economic growth.

In terms of ownership structures, institutional ownership is more prevalent in developed markets, while there is no significant difference between foreign and local ownership across emerging and developed markets. Additionally, the dataset was utilized to explore whether discretionary and non-discretionary disclosures can predict firm value, and whether this predictive ability holds in different reporting environments.