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

Articles in Press

Document Type : Original Article

Author

• Mojtaba Golmohammadi

Assistant Prof. in Accounting, Humanities Faculty, Meybod University.

10.22067/ijaaf.2025.92093.1526

Abstract

Following international accounting standards, the Iran Audit Organization (IAO) has required corporations to disclose risks in their financial statements since 2019. This study pioneers an examination of the informational value of these newly mandated disclosures under Iran's accounting standards. While previous global research has explored the effects of risk disclosure, this work addresses a critical gap by focusing on emerging markets, particularly Iran's unique institutional environment, where accounting reforms and disclosure practices remain understudied. For this purpose, we analyzed 1,580 corporation-years listed on the Tehran Stock Exchange (TSE) between 2014 and 2023 using multivariate panel regression with a fixed effects approach. The regression analyses reveal that mandatory risk disclosure is statistically unrelated to the cost of capital. Additionally, the interaction term between mandatory risk disclosure corporate governance proxies, such as ownership concentration and board independence, is also insignificant. However, the results indicate that board independence and institutional ownership have a negative and significant relationship with the corporate cost of capital. These findings suggest that while changes in accounting standards may increase the quantity of mandatory risk disclosures, they do not necessarily lead to a decrease in the cost of capital in the Iranian context. This may be attributed to companies' superficial compliance with the relevant requirements and the ensuing lack of oversight by audit committees and independent auditors regarding these disclosures. This study contributes novel insights into how transitional economies navigate disclosure mandates, offering policymakers actionable lessons for enhancing transparency and governance to realize the potential benefits of accounting reforms.

Keywords

• Mandatory Risk Disclosure
• Cost of Capital
• Corporate Governance
• Board Independence
• Ownership Concentration

Main Subjects

• Accounting

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