Mandatory Risk Disclosure Under Changing Accounting Standards: Effects on the Cost of Capital

Document Type : Original Article

Author

Department of Finance and Accounting, Humanities Faculty, Meybod University, Meybod, Iran

10.22067/ijaaf.2025.46773.1526

Abstract

In alignment with international accounting standards, the Iran Audit Organization (IAO) has required corporations to disclose risk information in their financial statements since 2019. This study is the first to examine the informational value of these newly mandated disclosures under Iran’s accounting standards. While prior international research has examined the effects of risk disclosure, this study fills a significant gap by focusing on an emerging market—specifically, Iran’s distinctive institutional environment—where accounting reforms and disclosure practices remain underexplored. To achieve this objective, we analyzed 1,580 firm-year observations from companies listed on the Tehran Stock Exchange (TSE) between 2014 and 2023 using multivariate panel data regressions with fixed effects. The empirical results show that mandatory risk disclosure is statistically unrelated to firms’ cost of capital. Furthermore, the interaction terms between mandatory risk disclosure and corporate governance variables—such as ownership concentration and board independence—are also insignificant. However, the findings indicate that both board independence and institutional ownership are negatively and significantly associated with the cost of capital. These results suggest that although the adoption of new accounting standards has increased the quantity of mandatory risk disclosures, such disclosures do not necessarily reduce the cost of capital within the Iranian context. This outcome may stem from superficial compliance with disclosure requirements and limited oversight by audit committees and independent auditors. Overall, this study offers new insights into how transitional economies navigate disclosure mandates, with actionable implications for improving transparency, strengthening corporate governance, and realizing the potential benefits of accounting reforms.

Keywords

Main Subjects

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Iranian Journal of Accounting, Auditing and Finance
Volume 9, Issue 4 - Serial Number 33
December 2025
Pages 183-204

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