Abstract
The objective of this study was to analyze the quality of mandatory and voluntary risk disclosure in Indonesia during the period of 2011 and 2012. The risk disclosure quality is defined as the quality of risk information that are disclosed by firms in term of relative quantity (adjusted by type of sub-industry and firm size), depthness (the potential impact of risk disclosed on firm’s future performance), the coverage within every type of risk, and the outlook profile of firm’s risk management. This study used samples of 48 firm-years of infrastructure companies that were listed in Indonesia Stock Exchange. Infrastructure industry was chosen due to the strategic role of this industry to support the acceleration and expansion of Indonesia's economic development. By using a descriptive qualitative method, the result showed that firms were still emphasizing on relative quantity dimension compared to the other three dimensions: coverage, depth, and outlook profile of firm risk management. In addition, the quality of mandatory risk disclosure was better than voluntary risk disclosure either for depth, coverage, or an outlook profile of firm risk management dimension. In other words, financial risk items (mandatory risk disclosure items) have better quality rather than non-financial risk items (voluntary risk disclosure items).
Highlights
Infrastructure development is one of the top priority in Indonesia's development plans. It was stated in Master Plan for the Acceleration and Expansion of Indonesian Economic Development for 2011-2025
As disclosed by Euro monitor International (2014), the business risk environment index in Indonesia is relatively high compared to other countries
The currency risk will be discussed further. Another interesting finding is the mean value of is an outlook profile index of firm i; rfli is the number of sentences of risk are disclosed by the firm i; kj is the number of sentences of risk disclosure in the firm's annual report j; ACPijis given a value of 1 if the sentence of j in the annual report of firm j is containing with information relating to the actions or policies or programs are taken to address the risk, and given a value of 0 if the actual quantity of risk disclosure (MAND_D) is different from the mean value of the relative quantity of risk disclosure (ABSRQT), respectively are 15.65 (16) and 7.25 (7) sentences
Summary
Infrastructure development is one of the top priority in Indonesia's development plans. This study used four dimensions of quality risk disclosures that had been not used yet in the study of Syabani & Siregar (2013) and Wulandari & Djuminah (2013), which are relative quantity, coverage, depth, and outlook profile of firm risk management dimensions. By using these four dimensions, the study aimed to be able capturing the more comprehensive quality dimensions of risk disclosure (Beretta & Bozzolan, 2004; Miihkinen, 2012).
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