Attributes of Corporate Risk Disclosure: An International Investigation in the Manufacturing Sector

Abstract

This paper is the first multi-country investigation of comprehensive corporate risk disclosure. Based on a detailed content analysis of 160 annual reports, we analyze the attributes and the quantity of risk disclosure and its association with the level of firm risk in the U.S., Canadian, U.K., and German settings. We find a consistent pattern where risk disclosure is most prevalent in management reports, concentrates on financial risk categories, and comprises little quantitative and forward-looking disclosure across sample countries. In terms of risk disclosure quantity, U.S. firms generally dominate, followed by German firms. Cross-country variation in risk disclosure attributes can only partly be linked to domestic disclosure regulation, suggesting that risk disclosure incentives play an important role. While risk disclosure quantity appears to be positively associated with proxies of firm risk in the North American settings, we find a negative association with leverage for Germany. This coincides with a “concealing motive” implied by an insider role of banks in the German financial setting.

The Effect of the 2007/2008 Financial Crisis on Enterprise Risk Management Disclosure of Top US Banks

“…The quality of risk disclosure is measured using the same list of items that is used for the volume and the crisis affected the way these items are disclosed and proved that the same categories of risk information are disclosed with more specific details. With regards to the determinants of the ERM disclosure, the results of the regression analysis show a positive and significant relation between SIZE and ERM disclosure (p = 0.000) for all the proxies of ERM disclosure which is consistent with our H2 and previous research (Beretta & Bozzolan, 2004;Dobler et al, 2011;Abraham & Cox, 2007). Results concerning DEBT are inconclusive.…”

“…Some researchers found that ERM disclosure is significantly associated with company size Abraham & Cox, 2007). Dobler et al (2011) found that risk disclosure is positively associated with the risk measures of American and Canadian companies, and negatively associated with the risk measures of German companies while found no relation between risk disclosure and measures of firm risk levels.…”

“…Studies that investigated the nature of risk disclosure have reported that the disclosures are qualitative with a gap in disclosing forward-looking information (Beretta & Bozzolan, 2004;Dobler et al, 2011;Ntim et al, 2013).…”

“…In this context, attention dedicated to risk disclosure in annual reports of companies has increased substantially, and many academic research studies investigated this topic (see Beretta & Bozzolan, 2004;Lajili & Zéghal, 2005;Linsley, Shrives, & Crumpton, 2006;Abraham & Cox, 2007;Dobler, Lajili, & Zéghal, 2011;Maingot, Quon, & Zéghal, 2012;Ntim, Lindop, & Thomas, 2013;Abraham & Shrives, 2014). All of them used content analysis in order to assess the presence of risk disclosure in annual reports, but few have investigated the effect of the crisis on the quality and the volume of ERM disclosure.…”

Does Firms' Risk Management Human Capital Reduce the Likelihood of Financial Distress?

“…Specifically, in the US, Financial Reporting Release NO.48 (FRR 48) was introduced in 1997, and requires Securities Exchange regulator registrants to provide information in the management, discussion, and analysis section of the 10K-reports, which mainly focus on the materiality of risks and significant risk exposures, such as financial risk information relating to operations, financial condition, and forward-looking information. Similarly, Canada, North America, and Europe also require firms to disclose risk information in the management, discussion, and analysis section, including a description of business operations and description of risks and uncertainties (Dobler, Lajili, and Zéghal, 2011). …”