Abstract
ABSTRACT 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.
Highlights
IntroductionThis study examines the informational relevance attributed to the disclosure of information on risk factors associated with firms and to the reporting on the existence of risk management
José Glauber Cavalcante dos Santos & Antonio Carlos CoelhoThis study examines the informational relevance attributed to the disclosure of information on risk factors associated with firms and to the reporting on the existence of risk management
It was concluded that the type of disclosure studied interferes in the attribution of value to a business, which suggests that other information, not recognized in the accounting process for valuing firms, in this case associated with information about risk factors and about risk management bodies, interferes in the valuation process in the capital market, in addition to the strictly accounting valuation
Summary
This study examines the informational relevance attributed to the disclosure of information on risk factors associated with firms and to the reporting on the existence of risk management. 480 (CVM, 2009), in the item about “risk factors that can influence investment decisions” to be reported by firms in the Reference Form. This would describe risk factors linked to the company itself, to the controller, to the shareholders, to the controlled parties, suppliers, and customers, to the operating sector, to the regulation, and to operations in foreign countries. With regards to the information on risk management, it is imperative for the company to report on the existence of a specific body in the administrative structure
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