This paper aims to study the effect of new regulatory requirements on disclosure through a longitudinal study. The empirical setting is offered by the risk reporting in the management commentaries of Italian listed companies. In this setting there is an evolution from a voluntary disclosure environment toward a regulated one, with the gradual introduction of new reporting requirements.
This paper uses the content analysis method to investigate the narrative risk disclosure. Non‐parametric statistics are used to test the hypotheses.
It is found that even when new mandatory disclosure is introduced, managers exploit discretion and do not change their disclosure policy, continuing to withhold relevant information to external users. Before and after the introduction of new regulation, managers' behaviour appears in line with self‐interest to protect themselves from litigation and competitive costs, as well as from possible decreases in the firm's value.
The study provides a longitudinal study, covering changes from a voluntary disclosure environment to a regulated one. The paper provides evidence that the management incentives do not change in the presence of new disclosure regulation.
