Signaling strategies in annual reports: evidence from the disclosure of performance indicators

In voluntary annual report communication, empirical results of signaling theory are contrasting, mainly owing to problems in disclosure measurements. We focus on a specific piece of incremental information and study the signaling strategies in annual reports by analyzing the disclosure of performance indicators that provide incremental information. In this paper, we scrutinize the business review of a sample of 120 listed Italian companies for fiscal year 2010. After controlling for size, risk, and industry, our analysis confirms that the number of indicators published is positively related to firm profitability. Our results help clarify the signaling strategies in annual report communication. Operatively, our evidence can help regulators and standard setters to better discipline the communication of relevant and private information in annual reports, particularly performance indicators.