Political Risk and the Demand for Voluntary Disclosure

In this study, we examine the impact of firm‐level political risk on the demand for voluntary disclosure. When firms face higher levels of political risk, they not only face greater uncertainty relating to political outcomes but also a number of potentially significant negative consequences that can stem from them. We investigate if firms facing higher levels of political risk experience greater demand for disclosure from investors who are concerned with protecting against costs associated with this risk. Our results indicate that firms facing higher levels of political risk not only experience greater demand for disclosure, in general, but also experience greater demand for political disclosure, in particular. In a subsequent analysis, we investigate whether these findings are concentrated in firms that publicly disclose a relation with a public official (or a relation with someone closely tied to the political circle). We find that the demand for disclosure is concentrated in firms that provide such public disclosure.