Value-relevance of disclosure: risk factors and risk management in Brazilian firms

Abstract

This study investigated whether the disclosure in accounting reports of information on risk and its management affects, at the margin, firm valuations in the Brazilian capital market. It questioned the existence of value relevance in the disclosure of information related to risk factors and risk management structures. The importance of the topic arises from the documentation that disclosure on risk factors plays a statistically significant role in valuing firms in a context marked by economic and political uncertainty, as is the case of the Brazilian market. The findings confirmed that information about risk shows informational relevance for firm valuations. Information on risk management in a firm, in turn, was not shown to be significant in terms of affecting company share valuations. The investigation of detailed reports with different risk factors indicated that individualized information shows different degrees of relevance for company valuations. It is inferred that the disclosure of risk factors affects the perception of investors, who also base their estimates of return on the availability and detail of such information. It is also observed that information on risk management structure was not shown to be value relevant; moreover, few firms published information on the establishment of this type of entity in their management structures. The residual income valuation (RIV) model (Ohlson, 1995) was applied using regressions with panel data estimation related to the three years covering 2012 to 2014. The sample, which was randomly delimited, was formed of 100 companies. The data on disclosure of risk and disclosure of risk management were collected from the companies’ Reference Forms, available from the website of the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA). As an impact on the area of knowledge, broader discussions are expected regarding the utility of disclosure on the topic related to risk factors and the existence of a specific body responsible for risk management in firms, according to investors’ perceptions. It also contributes by providing evidence about the quality of disclosure related to risk (factors and management) and the perception of the capital market regarding the informativeness and relevance of such elements.

The Moderating Effect of COVID-19 on the Relationship Between Corporate Risk Disclosure and Investor Perceived Confidence

“…It is proven by studies that emphasize operational risk disclosures for effective market discipline [13] [14]. Thus, such risk disclosures play a great importance in informational relevance and are implied to affect investors [15]. Benlemlih et.…”

“…The presence of corporate risk disclosures has confirmed its use again to positively affect investors' perceptions and reduce information asymmetry despite being pressured by risk and uncertainty of COVID-19 [27]. This in turn can possibly increase companies' sustainability and value as investors approve of the disclosures presented have informational relevance [15][41] [52]. On the other hand, COVID-19 is thought to cause negative impacts on financial risk attitudes [22] [53].…”

Proposta de framework para o processo de gestão de Riscos no setor Público (PROGERIS)

“…A gestão de riscos pode ser definida como um processo contínuo capaz de identificar e mitigar elementos e eventos responsáveis por maximizar efeitos negativos nas práticas organizacionais, interferindo no alcance de seus objetivos (PENHA & PARISI, 2005;COSO, 2007;SANTOS & COELHO, 2018). Esses eventos podem gerar impactos negativos, positivos ou ambos simultaneamente.…”

أثر مستوى الإفصاح عن کفایة رأس المال وإدارة المخاطر ذات الصلة على قیمة البنک التجارى دراسة تطبیقیة على البنوک التجاریة المقیدة بالبورصة المصریة

“…) ‫ح‬ ‫ت‬ ‫ت‬ ‫اس‬ ‫لر‬ ‫تضحا‬ ‫حبف‬ ‫ت‬ ‫توحاةك‬ ‫ح‬ ‫د‬ ‫ترحا‬ ‫يرح‬ (Jizi & Dixon, 2017;Dignah et al,2017;Al-Mghzom et al, 2016;Zer, 2015 Kamaruzaman et al, 2019 ;Santos & Coelho, 2018;Malafronte et al,2018;Alzead, 2017 ;Bravo, 2017;Louhichi & Zreik, 2015;Oyerogba, 2014 (Jizi & Dixon, 2017;Bravo, 2017;Zer, 2015;Louhichi & Zreik, 2015 (Santos & Coelho, 2018;Jizi & Dixon, 2017;Dignah et al,2017;Zer, 2015;Niessen-Ruenzi et al, 2015;Louhichi & Zreik, 2015 (Kamaruzaman et al, 2019;Alzead, 2017 ;Al-Mghzom et al, 2016 (Zer,2015;Aryani,2015) . ‫ح‬ (Nahar et al, 2016A;Aryani,2015;Zer,2015…”