The Impact of Accounting Disclosure of Geopolitical Risks on Earnings Quality and its Reflection on Firm Value

Abstract

This research investigates the impact of accounting disclosure of geopolitical risks (GPR) on Earnings Quality and its reflection on firm value within the context of the Iraqi banking sector. The research is motivated by the growing significance of geopolitical uncertainties and their implications for financial reporting and corporate valuation. 

The research was conducted on ten Iraqi banks listed on the Iraq Stock Exchange (ISX), utilizing a structured questionnaire designed to assess three key dimensions. The first dimension examines the level of geopolitical risk disclosure, comprising 35 items across seven critical areas: wars and military conflicts, terrorist attacks, cyber threats, climate change, subsequent events, internal control over financial reporting, and management strategies. The second dimension evaluates the Earnings Quality through 15 items, while the third dimension assesses firm value, also with 15 items.

A total of 117 employees answered the questionnaire, and the collected data were analyzed using IBM SPSS 27. multiple regression analysis to test the proposed hypotheses. The findings reveal that geopolitical risk disclosure enhances earnings quality. Furthermore, both geopolitical risk disclosure and earnings quality directly influence firm value, with earnings quality acting as a mediating factor.