This paper examines the impact of corporate governance on the
level of voluntary disclosures of forward-looking statements in
the narrative sections of annual reports. It also examines whether
the forward-looking statements that are driven by governance are
informative about future earnings. This analysis is drawn from a
large-scale sample of UK FTSE All-Share companies for financial
years ending within the period January 1996–December 2007.
We find that corporate governance influences companies’ decisions
to voluntarily disclose these statements. The main drivers are
directors’ ownership, board size, board composition, and the duality
of the CEO’s role. These results suggest that better corporate
governance improves reporting practice. We further find that the
forward-looking statements of well governed firms improve the
stock market’s ability to anticipate future earnings. Our findings
have important implications for policy makers and regulators
because they confirm that the effectiveness of corporate governance
in the practice of disclosure is a function of certain characteristics
and that the voluntary forward-looking statements of
well governed firms contain value relevant information for
investors.