Analysing the determinants of narrative risk information in UK FTSE 100 annual reports

Abstract

We investigate the relationship between the quantity of narrative risk information in corporate annual reports and ownership, governance, and US listing characteristics. We find that corporate risk reporting is negatively related to share ownership by long-term institutions, and thus the results of this study put forth that this important class of institutional investor has investment preferences for firms with a lower level of risk disclosure. Concerning governance, we find that different types of board director fulfil different functions, with both the number of executive and the number of independent directors positively related to the level of corporate risk reporting, but not the number of dependent non-executive directors. This supports a recent emphasis in the UK on the independent aspects of non-executive directors for good corporate governance. Separate investigation of business, financial, and internal control aspects of risk reporting that correspond to the three classes of risk-reporting guidance in the UK reveals that the pattern of risk information in the annual report may be dependent upon the form that reporting regulation takes.