Abstract
We explore the relationship between the degree of financial risk disclosure and a firm’s financial attributes. Financial risk disclosure indices (FRDIs) are calculated based on a set of 30 disclosure identifiers through content analysis of the annual reports of 48 manufacturing companies over a six-year period (2010–2015) in Bangladesh. We find no common practice among the companies in disclosing financial risk by integrating a customized financial risk disclosure into their financial reporting process. The results indicate that firm size, financial performance, and auditor type are positively and significantly associated with the level of financial risk disclosure.
Highlights
Risk disclosure is information that describes firms’ major risks and their expected economic impact on their current and future performance (Miihkinen 2010)
This study examines the level of financial risk disclosure of publicly traded manufacturing companies by investigating the association between the level of financial risk disclosure and firm specific characteristics
Compliance with Bangladesh Financial Reporting Standard (BFRS)-7 requires that public companies uniformly disclose financial risk, our results show that there is no common practice in this regard
Summary
Risk disclosure is information that describes firms’ major risks and their expected economic impact on their current and future performance (Miihkinen 2010). The 2007–2009 global financial crises have significantly raised concerns about the aggressive risk taking of public companies, research interest in risk management, and disclosure around the world and triggered regulatory reforms from various government agencies and accounting standard setters (Dobler 2005; Rezaee 2016). The Dodd–Frank Act (DOF) of 2010 requires large financial institutions in the United States to have a board-level risk committee that oversees the assessment, management, and disclosure of financial risks (Dodd–Frank Wall Street Reform and Consumer Protection Act 2010). Prior research (e.g., Beasley et al 2008; Pagach and Warr 2007) finds that firms with financial challenges and stock price volatility are more likely to adopt ERM and disclose their financial risk.
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