The influence of mandatory requirements on risk disclosure practices in Spain

Abstract

This article empirically examines the influence of the Unified Code of Good Governance on the amount and quality of the information on corporate risks disclosed in corporate governance reports from a sample of 35 listed Spanish firms during the period 2004–2009. Using the content analysis technique, two disclosure indices were developed to identify a pattern of behaviour in the disclosure of information on corporate risks by Spanish listed companies. This was done by analysing the evolution of such disclosure over time, considering their length and content. The results show that risk disclosure made by Spanish firms has a narrative character, although disclosure of quantitative and detailed information has slightly increased. Moreover, a progressive improvement of the average value of both Risk Disclosure Indices from the pre-release period (2004–2005) to the post-release period (2006–2009) was observed. This indicates some influence of the publication of the Unified Code of Good Governance on the quantity and quality of risk information disclosed by Spanish companies. This result could be particularly useful to regulators in order to enhance risk disclosure. Moreover, listed firms can use this information to perform a benchmarking process in relation to other firms’ current risk disclosure practices. Lastly, this article aims to contribute to the current debate on what kind of framework (mandatory or voluntary) is more appropriate for corporate risk disclosure.