Abstract

This study investigates the relation between equity market value and nonaccrued contingent liability that is disclosed in the footnotes but it is not recognized in net income. The analyses focus on whether the prices of shares in the stock market and the return’s expectation of market react by the disclosure of non-accrued contingent liability in footnotes. 3.180 footnotes were analyzed from periods 2006 to 2010 of 159 companies of different sectors, in twenty quarterlies. These companies are listed in different corporate governance’s levels of the São Paulo Stock Exchange. This study shows that the disclosure of non-accrued contingent liability in the footnotes is perceived by share price. In particular, the findings were consistent with the results of previous research that found that stock options are viewed as expenses and they are negatively associated with share price. The findings indicate that investors view the disclosure of non-accrued contingent liability as expense of the firms that reflect in their valuation assessments. This suggests that managers believe that even though nonaccrued contingent liability to be disclosed in the footnotes and not recognized as expense, it is relevant to financial statement users.