Financial Risk Disclosure Research Articles

Reporting Corporate Risk: An Empirical Inquiry into Listed Entities in the Saudi Capital Market

A capital market with greater transparency provides more accurate metrics for measuring corporate performance, which can be utilized to inform market participants’ decisions. Informed risk is crucial to corporate reporting transparency. This empirical study explores the extent to which firms in the Saudi capital market disclose risk information, whether financial or non-financial. A risk disclosure index (RDI) is constructed based on a rigorous literature review of previous studies, considering suggested items related to corporate risk that must be disclosed. The sample comprises 50 corporations, with five companies representing the energy sector, three representing the utility sector, and forty-two representing the materials sector. The findings reveal moderate financial risk disclosure (sample mean 56%) and low non-financial risk disclosure (sample mean 33%) in the Saudi capital market. In the energy sector, the disclosed financial and non-financial risks comprise 57% and 37%, respectively; in the utility sector, these proportions are 56% and 31%, while in the materials sector, they are 54% and 33%, respectively. Regulators should prioritize high-quality, transparent, and comparable risk information disclosure to attract direct foreign investment. To improve their risk disclosure, managers of firms can also employ the RDI to examine the extent of risk their companies face. This study is limited to the annual and board reports of companies in the three sectors.

Media Background of Directors and Financial Risk Disclosure: Evidence from Indonesia

Media Background of Directors and Financial Risk Disclosure: Evidence from Indonesia

The Impact of The Computerized Accounting Information System in Reducing Financial Risks in Jordanian Commercial Banks

Purpose: The purpose of this study was to assess the impact of computerized accounting information systems (CAIS) on reducing financial risks within Jordanian commercial banks listed on the Amman Stock Exchange. This involved examining the components, characteristics, and benefits of CAIS in this context. Methods: The study employed a questionnaire-based approach to gather information, distributing 75 questionnaires among financial managers and internal auditors within Jordanian commercial banks. A total of 64 questionnaires were retrieved and analyzed to draw conclusions. Results and Discussion: The analysis revealed a significant impact of various variables related to computerized information systems in mitigating financial risks within the sampled banks. This finding underscores the importance of CAIS in enhancing risk management practices within the banking sector. Notably, the study highlights the necessity of corporate governance implementation and the preparation of specialized reports to enhance financial risk disclosure processes. Implications of the Research: The findings of this research have several implications for both academia and practice. Firstly, they emphasize the crucial role of CAIS in reducing financial risks within commercial banks. Secondly, they underscore the importance of implementing robust corporate governance mechanisms to strengthen risk management frameworks. Additionally, the study suggests the need for further research to explore the impact of accounting information systems on different types of risks and their consequent effects on financial performance. Originality/Value: This study contributes to the existing literature by providing insights into the specific context of Jordanian commercial banks and their utilization of CAIS for managing financial risks. By identifying the components, characteristics, and benefits of CAIS in this setting, the research adds valuable knowledge to the field of accounting and finance. Moreover, its recommendations for enhanced corporate governance practices and specialized reporting can inform practical strategies for risk management in banking institutions.

Sensitive intervention points: a strategic approach to climate action

Abstract While some countries are making progress reducing greenhouse gas emissions, few are progressing rapidly enough to be on track to reach net zero emissions by mid-century. The transition to net zero involves deep structural transformation of the global economy and its associated complex socio-technical systems. Here, we set out a conceptual framework to identify ‘sensitive intervention points’ (SIPs) in systems where a small or moderately-sized intervention could drive outsized impacts and transformational change. These points take three forms: (i) critical tipping points, such as a critical price threshold, (ii) critical nodes in networks, such as an influential actor in a social network, and (iii) critical points in time, where windows of opportunity for change open up. We also propose an assessment methodology for prioritizing interventions in terms of their potential impacts, risks, and ease of implementation. We apply our framework and assessment methodology to evaluate a list of proposed interventions for accelerating global decarbonization. Promising interventions include investing in key clean energy technologies with consistent cost declines, introducing central bank policies to reduce the value of polluting collateral, and enhancing climate-related financial risk disclosure.

Do level, field, and place of board members’ Education impact financial risk disclosure? A Saudi Empirical evidence

This study aims to investigate the effect of board attributes (level, field, and place of education) on corporate financial risk disclosure in the Saudi energy sector. The research focuses on four energy companies listed between 2009 and 2021, resulting in 52 firm-year observations. Panel regressions were implemented to control for heteroscedasticity and autocorrelation. The study's results revealed that education level positively influences financial risk disclosure, whereas the impacts of place and field of education are not well-established. Moreover, the study explored the moderating role of education attributes in financial risk disclosure, indicating that companies with fewer highly educated board members who received their education from foreign universities other than those in Saudi Arabia are more inclined to disclose financial risks transparently. These findings suggest an essential need to diversify the level and place of education among directors, which holds significant implications for corporate governance policy-makers.

Does environmental, social, and governance performance affect financial risk disclosure? Evidence from European ESG companies

PurposeThis study aims to investigate the effects of environmental, social and governance (ESG) performance on financial risk disclosure of European companies. It analyzed the relationships between ESG factors and financial risk disclosure between 2010 and 2020.Design/methodology/approachTo test their hypotheses in this study, the authors used the multivariate regression analysis on panel data using the Thomson Reuters ASSET4 database and the annual reports of 154 European companies listed in the ESG index between 2010 and 2020.FindingsEmpirical evidence shows a positive association between European companies' environmental and governance performance with financial risk disclosure, whereas social performance does not influence financial risk disclosure. Concerning the control variables, the findings demonstrate that firm size and profitability are significant factors in changing the financial risk disclosure. Nevertheless, firms’ leverage is insignificantly correlated with financial risk disclosure.Originality/valueThis study extends the stream of accounting literature by focusing on the financial risk disclosure, a topic that has received little attention in previous research. Furthermore, to the best of the authors’ knowledge, this study is one of the first that provides ESG companies with evidence of the effect of ESG factors on financial risk disclosure in a developed market like Europe.

FINANCIAL ASPECTS AND FINANCIAL RISK DISCLOSURE: EVIDENCE FROM VIETNAM

This study delves into the dynamic relationship between profitability, liquidity, and financial risk disclosure within the context of the Vietnamese business landscape. Employing a comprehensive dataset spanning the period from 2011 to 2020, encompassing 350 publicly listed companies, we scrutinize the intricate interplay of these critical financial factors. Our investigation reveals significant insights into the influence of profitability and liquidity on the extent of financial risk disclosure by Vietnamese listed firms. Through rigorous statistical analysis and econometric modeling, we establish a clear and robust link between these variables. The findings underscore the pivotal role played by profitability and liquidity as determinants shaping the propensity of firms to disclose information pertaining to their financial risks. As Vietnam's financial landscape continues to evolve and integrate within the global economy, the implications of our research offer valuable insights for regulators, investors, and corporate decision-makers alike. By shedding light on the nuanced relationship between profitability, liquidity, and financial risk disclosure, this study contributes to a deeper understanding of the mechanisms that underpin corporate financial reporting practices in an emerging market context.

Just energy business needed! How to achieve a just energy transition by engaging energy companies in reaching climate neutrality: (re)conceptualising energy law for energy corporations

Public administration and energy regulators provide policy and economic support to achieve climate neutrality; however, the role of key stakeholders in energy transition, such as energy companies, is critical to a just energy transition. Corporate voluntary incentives to guide, support and pressure companies to disclose their climate-related risks are becoming commonplace internationally. Yet, formal legal frameworks to engage energy companies in reaching net zero emissions have largely been confined to financial risk disclosure and voluntary regulation. In this context, the article offers a normative solution that enables the effective implementation of obligations imposed on energy companies related to the 2050 energy transformation, addressing the concept of ‘energy-just companies’. It also proposes the management of this process by illustrating a different, proactive approach to the role of effective obligations in the transformation process based on a novel understanding of energy law principles. These legal solutions consist of ‘corporate energy transformation plans’ based on energy justice applied by energy companies.

Examining the relationship between board characteristics and financial risk disclosure: A longitudinal analysis based on agency theory.

The aim of this research is to enhance existing literature pertaining to corporate disclosure through an investigation of financial risk information that has been reported in annual reports. The study also seeks to determine the extent of disclosure and how it has changed over time. Furthermore, it examines the effects of board busyness, size, independence, and meetings on financial risk disclosure. The content analysis method was used to evaluate the annual reports of 4 energy companies over a 13-year period, resulting in 52 firm-year observations. The study used secondary data sources and focused on companies that were listed between 2009 and 2021. The findings indicate that board size has a positive impact on financial risk disclosure, whereas board independence has a negative impact. However, no significant effects were found for board busyness and board meetings. These results were robust across various estimation techniques. However, the study is limited in that it only considered certain board characteristics, and future research should explore the effects of other board characteristics and incorporate additional committee characteristics.

Financial Performance and Corporate Risk Disclosure: The moderating impact of Board Structure

Financial Performance and Corporate Risk Disclosure: The moderating impact of Board Structure

The Moderating Role of the Governance Index in the Relationship between Financial Risk Disclosure and Stock Liquidity: Evidence from Jordan

This study aimed to examine the impact of financial risk disclosure on stock liquidity as well as the role of the governance index in enhancing this impact for industrial companies listed on the Amman Stock Exchange. The (35) industrial companies that were included in the sample of those listed on the Amman Stock Exchange from (2015 to 2019) and whose published annual financial statements were examined. Descriptive statistics measures were employed for data analysis, and the study hypotheses were tested using multiple linear regression analysis and interactive regression analysis. The study came to the conclusion that there is no statistically significant relationship between financial risk disclosure and the stock liquidity of industrial companies listed on the Amman Stock Exchange, and that the governance index has no statistically significant influence on enhancing this relationship. The study recommended the need for the responsible authorities to raise awareness among the management of industrial companies, of the importance of disclosing any financial risks they may be exposed to, and the disclosure of appropriate policies for managing financial risks, in addition to its awareness of the importance of disclosure On the items of governance, because of their role in building a positive image of the company and improving its performance and reputation.

Effect of macroeconomics, capital, and asset growth on financial risk, earning and Islamic corporate social responsibility disclosure with corporate governance (GCG) as a moderating variable in Indonesian Islamic banking companies

Islamic Corporate Social Responsibility Disclouser (ICSRD) is a social responsibility carried out by the company as a form of concern for the environment and society so that the company continues to grow sustainably. This study aims to test the concept of variables that affect ICSR, and a significant push for testing of hypotheses 1 to 14 that strengthen macroeconomics, capital, asset growth, financial risks, earnings, and Islamic Corporate Social Responsibility (ICSR). The population in this study was Sharia Commercial Banks in 2017, a sample of 13 Sharia Commercial Banks (BUS) taken in Indonesia. This type of research is quantitative research that explains the relationship between independent variables and dependent variables through hypothesis testing. The method in this study was the Partial Least Square (PLS) version of 2.0. The results of this study generate the Macro Economics had positive effect on Financial Risks. Macro Economics has a positive effect on Earing. Macro Economics has a positive effect on ICSR. Capital has a significant positive effect on Financial Risks. Capital has a significant positive effect on earning. Capital significantly positive effects against ICSR. Asset Growth has a significant positive effect on Financial Risks. Asset growth has a significant positive effect on earning.

Management obfuscation through mandatory financial risk disclosure: evidence from European-listed banks

Purpose This study aims to investigate the readability of financial risk disclosure divulged by listed banks of the first five European countries according to gross domestic product. Design/methodology/approach This study adopts the management obfuscation hypotheses and tests data gathered for a sample of 790 observations from listed banks in Europe covering the 2007–2018 period. This study uses a readability index (Gunning’s fog index) as the dependent variable for measuring the readability of banks’ mandatory financial risk disclosures. Moreover, it relies on a completeness index, discretionary accruals and several control variables for identifying the determinants of risk disclosure readability using ordinary least square regression for testing the hypotheses. Findings The findings show the existence of a positive relation\nship between readability and completeness of risk disclosure. In contrast, a negative relationship exists between readability and banks’ discretionary accruals. Originality/value This study expands the stream of accounting literature analyzing the lexical characteristics of narrative risk disclosure, and, by focusing on the financial risk disclosure of banks, it extends the readability-related debate, which has primarily concentrated on other types of disclosure to date. This study is relevant to regulators and policymakers for fostering reflections as actions for improving the financial risk disclosures readability. This study is also of potential interest for investors to better delve into the questions surrounding risk disclosure.

Exploring financial risks disclosure: evidence from Indian listed companies

PurposeThe purpose of this paper is to contribute to the existing literature on financial risk disclosure by examining a sample of non-financial Indian companies listed on the Bombay stock exchange (BSE) to explore the degree of information about financial risks contained in their annual reports.Design/methodology/approachTo study the financial risk disclosure of Indian companies, a sample of 206 non-financial companies has been derived from the top 500 listed companies at BSE. The method used in this study to analyze risk disclosure is content analysis. A total of 1,854 annual reports are scanned through software Nvivo-12 to find different types of risk words. Overall, risk disclosure, category wise risk disclosure, year-wise risk disclosure and sector-wise risk disclosure are assessed. The risk disclosure index is also computed.FindingsThe results show that there are some risk disclosure practices in Indian companies. No general pattern is observed. Companies are following vague method of risk disclosure. In the true sense, Indian companies are now started risk disclosure practices since 2018. This may be because of pressure from regulating bodies and stakeholders with greater detail about their financial risks.Originality/valueThis study is carried out for Indian non-financial companies. The paper adds to the literature relating to financial risk disclosure in developing countries.

The determinants of financial risk disclosure in annual reports in emerging economies: Evidence from Egypt

This study aims at investigating the impact of firm and corporate governance determinants on the financial risk disclosure in annual reports. The researcher hypothesized that both the firm characteristics including size, profitability, and leverage and corporate governance characteristics including board size and audit firm size have significant effect on financial risk disclosure. Content analysis was used to analyze the data of 21 non-financial companies listed in Egyptian Stock Exchange during the period 2017-2019. The results of the study indicated that firm size has negative effect on the financial risk disclosure, while leverage and audit firm size positively significantly affect the financial risk disclosure. On the other side, both profitability and board size have no significant effect on the financial risk disclosure. However, this paper has contributed to the prior research by shedding the light on financial risk disclosure practices of Egyptian listed non-financial firms. Finally, the research recommends large Egyptian firms to increase their financial risk disclosure in annual reports to maintain the confidence of investors.

Gender diversity, corporate governance and financial risk disclosure in the UK

PurposeThis study aims to investigate the impact of corporate governance (CG) mechanisms on financial risk reporting in the UK.Design/methodology/approachThe study uses a panel data of 50 non-financial firms belonging to 10 industrial sectors listed on the London Stock Exchange in the period 2011-2015. Multivariate regression techniques are used to examine the relationships.FindingsThe findings of this study reveal that CG has a significant influence on financial risk disclosure. Specifically, it is found that block ownership and board gender diversity have a positive effect on the level of corporate financial risk disclosure (FRD). While there is no significant relationship between board size and corporate FRD.Research limitations/implicationsThis study has significant implications for policy-makers, investors and regulators. Evidence of growing FRD implies that efforts by several stakeholders have had some positive impact on the level of FRD in the firms examined. Examples of such changes include, namely, increasing board size and gender diversity acting as effective firm level advisors and monitors of FRD. As a consequence, regulators and policymakers should continually pursue reforms to encourage firms to follow CG principles that are promoted as good practice.Originality/valueThis study adds to the emerging body of literature on CG–risk disclosure relationships in the UK context using content analysis. The study also highlights that gender diversity enhances FRD.

The effects of risk factor disclosure on analysts’ earnings forecasts: evidence from Chinese IPOs

ABSTRACT Using Chinese IPO firms, we examine the impact of risk information disclosure on the properties of financial analysts’ earnings forecasts. We construct a disclosure index by manually reading the disclosures of risk factors in IPO prospectuses. We find that high-quality risk factor disclosure is associated with lower earnings forecast bias, less dispersion, and more timely forecasts. Separating total risk factors into five different types, we show that analysts have better ability to process financial risk and operational risk disclosure compared to the other three types (technology-related risk, market risk, and macroeconomic risk). Cross-sectional tests reveal that the positive effect of risk disclosure is mainly concentrated in firms with greater information transparency (e.g., larger firms, firms with higher profitability, and firms with lower performance volatility). We further rule out other potential explanations (e.g., the effect of analyst sentiment) and conduct additional robustness tests. Our study has broad implications for firms in emerging economies.

The moderating role of Shariah supervisory board on the relationship between board effectiveness, operational risk transparency and bank performance

PurposeThe purpose of this study is to determine the effect of board effectiveness (BE) on financial performance and operational risk (OR) disclosure and the interaction effect of a bank’s Sharia Supervisory Board quality (SSB) with religious and ethical principles.Design/methodology/approachThe data were collected from the annual financial reports of 25 Islamic banks (IBs) in the Gulf Cooperation Council countries over 2008-2017. The OR disclosure, the SSB quality and BE were measured using self-developed indices. The Tawhidi string relation methodology was used to establish the circular causal model. The moderating effect of the SSB quality on the performance, OR disclosure and board structure relationship was examined using the hierarchical regression analysis.FindingsThe main finding of this study is related to the positive moderating effect of SSB quality on the relationship between performance, OR disclosure and BE. This result seems to indicate that at a high level of SSB quality, even when the performance increase the IBs engage in complying with OR disclosure to inform the stakeholders on the real situation of the bank.Practical implicationsThe finding of this research would be of great support to stakeholders and policymakers to make more pressure on IBs to improve the quality of their SSB structure and show more compliance with the governance recommendations. As an extension to this research, further study can examine other Islamic governance mechanisms such as Sharīʿah-compliant banks.Originality/valueThe present study provides a new addition to the prior literature by investigating the relationship between performance, BE, OR disclosure and the interaction effect of SSB quality. From an Islamic ethical, this research can also contribute to the growing discussion on SSB quality and performance.

The Value Relevance of Risk Disclosure: An Analysis of the Banking Sector

The aim of this study is to test whether financial risk disclosures required by IFRS 7 and Pillar 3 are value relevant for investors to support them in their investment decisions. The sample in the study consists of banks listed on the London, Paris, Frankfurt, Madrid, and Milan Stock Exchanges over an 8-year period, from 2007 to 2014. Based on the aforementioned standards, we built financial risk disclosure indexes and distinguished different risk categories, qualitative and quantitative, as well as credit, liquidity, and market risk. Our analyses confirm that there is a positive association between bank value and several categories of established risk disclosures. Furthermore, it suggests that disclosure adds value to more traditional risk value measures. Besides, our results suggest that investors pay attention to the strength of the bank authority when using risk disclosures.

Gender Diversity, Corporate Governance and Financial Risk Disclosure in the UK

Purpose – This study investigates the impact of corporate governance mechanisms on financial risk reporting in the UK. Design/methodology/approach – The study uses a panel data of 50 non-financial firms belonging to ten industrial sectors listed on the London Stock Exchange in the period 2011-2015. Multivariate regression techniques are used to examine the relationships. Additionally, to alleviate the concern of potential endogeneity, we use two-stage least squares and fixed effect estimators. Findings – The findings of this study reveal that corporate governance has a significant influence on financial risk disclosure. Specifically, we find that block ownership and board gender diversity have a positive effect on the level of corporate financial risk disclosure. While, there is no significant relationship between board size and corporate financial risk disclosure. Originality/value – This study adds to the emerging body of literature on corporate governance–risk disclosure relationship in UK context using content analysis. The study also highlights that gender diversity enhances financial risk disclosure.