Risk Disclosure as a Resilience Tool in Central Governments: Assessing Current Practices in the United Kingdom and the Netherlands

To date, research which integrates corporate governance and risk management has been limited. Yet, risk exposure and management are increasingly becoming the core function of modern business enterprises in various sectors and industries domestically and globally. Risk identification and management are crucial in any business strategy design and implementation. From the investors’ point of view, knowledge of the risk profile, risk appetite and risk management are key elements in making sound portfolio investment decisions. This paper examines the relationships between corporate governance mechanisms and risk disclosure behavior using a sample of Canadian publicly-traded companies (TSX 230). Results show that Canadian public companies are more likely to disclose risk management information over and above the mandatory risk disclosures, if they are larger in size and if their boards of directors have more independent members. Minority voting control ownership structures appear to negatively impact risk disclosure and CEO incentive compensation shows mixed results. The paper concludes that more research is needed to further assess the impact of various governance mechanisms on corporate risk management and disclosure behavior.

A CONCEPTUAL FRAMEWORK FOR CORPORATE RISK DISCLOSURE EMERGING FROM THE AGENDA FOR CORPORATE GOVERNANCE REFORM

In recent decades, financial and accounting regulators have turned the spotlight on risk management and disclosure. Like securities regulators in the United States, the United Kingdom and several other countries, Canadian Securities Administrators have set out requirements for the disclosure and discussion of risks in the MD&A section of annual reports. Responding positively to these new guidelines, organisations now report many risks in their MD&A. These disclosure requirements are intended to provide information about a company’s material risks to help stakeholders understand and evaluate interrelated risks, the risks’ impact and the company’s risk management strategies (Khandelwal, Kumar, Verma, & Pratap Singh, 2019). However, since the nature of the risks disclosed derives wholly from organisational decisions, the content of these disclosures can be considered voluntary. For this reason, some critics argue that risk disclosures are by and large boilerplate in nature (Bao & Datta, 2014; Hope, Hu, & Lu, 2016). From this perspective, this study aims to examine whether there is a relationship between the risks firms disclose in their annual reports and their systematic risk. The regression analyses were carried out on the risks disclosed by a sample of 200 Canadian companies included in the 2016 Toronto Stock Exchange S&P/TSX Composite Index. These analyses revealed a positive and significant relationship between the risks disclosed and the firms’ systematic risk. Our results support the regulatory approaches respecting this type of information adopted by a number of countries. Accordingly, disclosing the risks that companies face should help small investors understand and appreciate them.

This paper investigates non-financial reporting in non-profit organisations. Specifically, it examines the extent to which UK higher education institutions (HEIs) make voluntary disclosures relating to risk management practices, and investigates whether composite governance quality index and senior management team characteristics can influence such risk disclosures. Using a sample of UK HEIs over a number of years and drawing insights from neo-institutional theory, our findings are three-fold. First, our baseline findings contribute to the literature by showing that the level of risk disclosure among HEIs in the UK is relatively low, especially when compared to the findings of prior studies that have been conducted on similar-sized publicly traded corporations. Second, we contribute to the literature by providing timely evidence on the impact of governance quality on risk disclosure. In particular, our evidence contributes to the existing literature by demonstrating that better-governed HEIs tend to engage in higher risk disclosures than their poorly-governed counterparts. Finally, our study contributes to the extant literature by providing new evidence that offers support for the “shared” governance model among UK HEIs. Specifically, our findings show that the positive governance quality–risk disclosure relationship is moderated/explained largely by the characteristics of the senior management team. Our findings are robust to controlling for endogeneities and alternative estimation techniques, with major implications for non-financial reporting. HIGHLIGHTS This paper examines non-financial reporting (NFR) in non-profit organisations, with specific focus on risk disclosures by UK higher education institutions (HEIs) We examine the effect of UK HEIs' governance quality on the level of risk disclosures; We investigate whether management team characteristics moderate the governance quality-risk disclosures nexus in UK HEIs We find that better-governed UK HEIs tend to engage in higher levels of risk disclosures We show further that the positive governance quality-risk disclosure relationship is moderated/explained largely by the characteristics of the senior management team

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.

IMPACT This article will help government managers, regulators, and standard setters to improve risk management and disclosure in emerging economies. Evidence from in-depth interviews will guide government-owned banks in Bangladesh to effectively manage and voluntarily disclose risk management practices. The authors argue that legitimization might be a strategy for government-owned banks in pursuing to survive in the finance industry.

The International Accounting Standard Board (IASB) aimed to increase the decision usefulness of firms’ risk disclosures with the 2007 introduction of the International Financial Reporting Standards (IFRS) 7. Specifically, listed firms were mandated to provide information to the market on both their (1) exposure and (2) risk management, which are associated with holding their financial instruments. This study investigates whether IFRS 7 financial instruments and their disclosures are associated with firm valuation. Using data on premiumlisted United Kingdom (UK) companies, for the period 2007–2019, I find evidence that firm value (proxied by Tobin's Q) is negatively associated with the quantity of IFRS 7 interest and credit risk disclosures. I further find that the market value decreases with the presence of quantitative information tabulated in the disclosures. The findings of this study have important implications for the IASB's standard-setting process.

This study measures the degree of corporate risk disclosure and examines its impact on the credit risk of banks listed on the GCC financial markets during the period 2007–2021. The results of the content analysis show a low degree of overall risk disclosure index and sub-risk categories, except for financial risk disclosure, for all GCC-listed banks. The effect of the degree of risk disclosure on credit risk is examined by applying a robust generalized method of moment system estimation (GMM) to dynamic panel data. The results of the GMM show that the impact of disclosures of strategic risk, operational risk, financial risk, damage risk, and risk management vary from one country to another, but overall, they are positively associated with the financial stability of all GCC-listed banks. In terms of comparison, the results show overall significant differences in credit risk, strategic risk disclosure, operational risk disclosure, operational risk disclosure, firms’ damage risk disclosure, and risk management disclosure between conventional and Islamic banks as well across GCC countries.

Agency Problems, Auditing, and the Theory of the Firm: Some EvidenceAuthor(s): Ross L. Watts and Jerold L. ZimmermanSource: Journal of Law and Economics, Vol. 26, No. 3, (Oct., 1983), pp. 613-633Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/725039Accessed: 29/06/2008 23:14

Disclosure of risk is the provision of information about the risks encountered by the firm and how risk management is conducted. Disclosure of risks is essential for assisting stakeholders in obtaining risk profile information and management. This study aims to evaluate and assess the impact of firm factors (size, liquidity, profitability, leverage) and effective corporate governance (size of the board of directors and ownership structure) on risk management disclosures. For 2020-2021, the IDX has a quarterly listing of the research population for textile and apparel subsector manufacturers (quarterly). With a total of 64 observations, the sampling method is nonprobability with purposive sampling. Quantitative research and secondary data sources are categorized—as descriptive statistical data analysis methodologies. Before multiple regression analysis, all data were subjected to classical assumption tests (normality test, multicollinearity test, and heteroscedasticity test). According to the determination coefficient test results, all independent factors had an influence of 64.3% on risk management disclosure. The effects of research on business size, profitability, leverage, and ownership structure on risk management disclosure are beneficial. On risk management disclosure, liquidity has a negative influence, whereas the size of the board of commissioners has no effect. Future researchers are anticipated to expand their efforts so that test findings are more precise and reliable and to measure the ownership structure of various components.

This concept paper aims to review the potential of aligning Enterprise Risk Management (ERM) elements into risk disclosure of the IPO prospectus. This concept paper explores the potential for aligning ERM elements within the risk disclosure section of IPO prospectuses. The paper emphasizes the regulatory requirement of the risk disclosure in the prospectus. It highlights the importance of risk disclosure in investment decision-making. It contends the best practices of risk disclosure in the IPO prospectus for the benefit of investors and also reinforces the issuing company’s commitment to effective risk management and corporate governance. By incorporating ERM principles, the prospectus not only improves transparency but also strengthens the issuing company’s commitment to effective risk management and corporate governance. The key research objective is to evaluate the integration of ERM into IPO risk disclosures, with particular emphasis on regulatory compliance, investor decision-making, and the enhancement of corporate governance practices. This research endeavors to fill the gap in the literature by enhancing the ERM elements in the existing practices of IPO disclosure.

The identification, management and disclosure of risks have been the subject of recent legislation, directives and reporting standards issued across a number of international jurisdictions. To inform the disclosure debate, this paper provides a detailed analysis of the risk warning disclosures of initial public offering (IPO) companies and the factors that drive such disclosures. We find that risk disclosures of IPO companies contain a greater proportion of forward‐looking information but a lower proportion of information on internal controls and risk management than the disclosures of listed companies. We find evidence that such disclosure has increased across time but that larger directors’ shareholdings are associated with a reduction in risk disclosure.

PurposeThe purpose of this paper is to explore to what extent risk disclosure is associated with banks’ governance characteristics. The research also focuses on how the business environment and culture may create a bank’s awareness of risk management and its disclosure. This study is conducted in a setting where banks are not mandated to follow international standards for their risk disclosures.Design/methodology/approachUsing 300 bank-year observations comprising hand-collected private commercial bank data, the study uses regression analysis to investigate the influence of risk governance characteristics on risk disclosure.FindingsThis paper reports a positive relationship between risk disclosure and banks’ governance characteristics, such as the presence of various risk committees and a risk management unit.Practical implicationsBecause studies are lacking on risk disclosure and risk governance conducted in developing countries, it is expected that this research will make a significant contribution to the literature and provide a foundation for further research in this field.Social implicationsThis study complements the corporate governance literature, more specifically the risk governance literature, by incorporating agency theory, institutional theory and proprietary cost theory to provide robust evidence of the impact of risk governance practices in the context of a developing economy.Originality/valuePrevious studies on risk disclosure and governance determinants primarily involve developed countries. This paper’s contribution is to examine risk disclosure and risk governance characteristics in a developing country in which reporting according to international standards is effectively voluntary.

Nigerian banks encounter persistent difficulties in efficiently managing and disclosing credit and liquidity risks, considerably affecting their financial performance and shareholders’ confidence. This study, therefore, examined the effect of risk-management practices and disclosures on the financial performance of Nigerian commercial banks. The population of the study comprised 13 Nigerian commercial banks, of which 12 were purposively chosen, subject to data availability. The data explored in this study originate from World Development Indicators and the annual reports and accounts of the selected Nigerian commercial banks from 2012 to 2023. The data analysis technique used was panel regression analysis, which was further extended to the generalized method of moments in a bid to account for potential endogeneity. The study made use of EViews 12 software to analyse the data. The results reveal that liquidity risk disclosure and firm size had significant and positive effects on financial performance, while credit risk disclosure, credit risk, firm age, and leverage had significant and negative effects. This study concludes that credit risks significantly undermine commercial banks’ financial performance, as an upsurge in non-performing loans results in reduced financial performance. Conversely, effective liquidity risk disclosure characterized by transparent reporting on liquidity position was found to enhance financial performance. This study, therefore, recommends, among others, that banks should strengthen their credit risk assessment framework and enhance transparent risk reporting to improve performance and financial stability.

This research analyzes the perception of accounting and auditing professionals in the city of Latacunga regarding internal control and risk management practices in Ecuadorian companies within the framework of the International Standards on Auditing (ISA), in order to identify the barriers and challenges in their implementation and to evaluate their effectiveness. The problematic situation lies in the variability of the study of these practices, especially in SMEs, which face resource and technical knowledge limitations. The theoretical framework is based on the definition and components of internal control, risk management and ISAs, highlighting the importance of continuous training and adaptation to emerging risks, such as cyber risks. The techniques employed combined qualitative and quantitative approaches, considering surveys of professionals in the financial and auditing sector, and case studies in Ecuadorian companies. The results indicate that although many companies have adopted ISAs, there is a significant disparity in the effectiveness of these practices due to lack of resources. Ongoing employee training and the implementation of advanced cybersecurity technologies stand out as critical factors in improving risk management. Internal audits are perceived as effective, and new internal control and risk management practices are well received by employees. In conclusion, effective implementation of ISAs and risk management in Ecuadorian companies requires an integrated approach that considers both traditional and emerging risks, and ongoing support in training and resources to ensure the reliability of financial reporting.