Abstract
This research examines the relationship between the risk management committee and textual risk disclosure. Textual risk disclosure is measured using the use of a risk-contained tone in the annual report. We employed empirical analysis for the Indonesian listed firms for the period 2010 to 2018. The findings of this research suggest that the existence of the risk management committee gives more risk disclosure. This finding implicates that firms with a risk management committee will give more risk disclosure, because they have a specific committee which have abilities concerning firm risk. The first additional analysis suggests that the results are more pronounced for firms within the period after the regulation to have a risk management committee was applied in Indonesia. We also make second additional analysis for different level of technology within industry. The existence of risk management committee for managing risk disclosure is more pronounced for company within high level of technology industry. We provide several contributions to the users of the financial statements such as shareholders and other stakeholders, especially regulatory bodies in Indonesia.
Highlights
Awareness of risk management is increasing, due to many recent corporate business failures and scandals (Walker et al 2002)
These results indicate that firms with better corporate governance, such as the director size and independent commissioner size, strengthen the relationship between the risk management committee and risk disclosure, as well as firm’s size, which indicates that in a bigger firm, the existence of a risk management committee is more effective than the firm’s risk disclosure
This research investigated the relationship between risk management committees and risk-contained tone
Summary
Awareness of risk management is increasing, due to many recent corporate business failures and scandals (Walker et al 2002). The choice of words and the arrangement of sentences in a report will affect the mindset and point of view of the reader in understanding the information contained therein (Chung and Pennebaker 2011) This is an interesting topic to research. Most previous studies discussed limited samples and examined the effects of several firms’ attributes of governance (such as board size and director independence), but not those specific to managing risk. To fill this gap in the literature, we examine the relationship between the risk management committees and bankruptcy risk. The researcher wanted to examine whether the existence of risk management committee affects the use of negative tone as a form of verbal risk disclosure. The section of this paper has the following structure: Section 2 will explain the development of the hypothesis; Section 3 will explain the sample and variables used in the study; Section 4 will explain the results; and Section 5 will provide conclusions of the study
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