The effect of defensive and forward-looking strategies on risk disclosure in firms

Considering the importance of the two vital components of risk disclosure and business strategies in today's complex and changing business world, the current research tries to investigate the effect of business strategy on risk disclosure. To achieve the purpose of the research, the financial information of 158 firm admitted to the Tehran Stock Exchange in the period from the beginning of 2011 to the end of 2022 and to test the hypothesis of the research, multivariate regression method and combined data were used. The findings showed that firms that adopt a forward-looking (defensive) strategy are significantly more (less) willing to disclose risk. These results are the same at the level of all sample firms of the research. According to organizational theory, firms with a forward-looking strategy participate in more voluntary disclosure because they have more motivation to reduce information asymmetry and rely more on external financing. But the negative effect of defensive business strategy in firms on risk disclosure may be due to the desire of firms to maintain competitive information and prevent disclosure of their sensitive and strategic information to competitors in order to maintain their competitive advantage. The results of this research can help analysts and investors to have a better understanding of firm’s risk disclosure behavior and how this behavior may be consistent with their strategies.