Financial Risk Disclosure Research Articles

Determinants of financial instruments risk disclosure: An empirical analysis in the banking sector

This study investigates the effects of firm and country factors, considered as determinants of the financial instruments risk disclosure (FIRD) proxied by IFRS 7 in the European banking system. We select 582 banks-year observations based on the largest five European economies (France, Germany, Italy, Spain and the UK) as provided by the International Monetary Fund (IMF). Our analysis covers a period of 8 years (2007-2014) and adopts an OLS model. Results show that both firm (the type of auditor, board size and profitability) and country factors (financing environment, regulatory environment, and organizational status) affect FIRD. Limitations for this paper could relate to country selection, as well as on the breadth of the sample. Nevertheless, these aspects could unveil possible areas of future inquiry. The contribution of the study is twofold. It enriches the literature about firm and country determinants on financial instruments risk disclosure, as combined rather than single-standing variables. Yet, it draws the attention of banks’ management and investors on what the crucial factors to reach an optimal level of FIRD are and gain the confidence of capital markets, reducing information asymmetries. This is the first empirical investigation on the determinants of FIRD, using IFRS 7, in the European banking sector that adopts firm and country factors in a combined effort.

The Climate Risk for Finance in Italy

The increasing attention paid to the possible consequences of climate change for the financial sector has strengthened international cooperation on green finance, with initiatives from both the industry and the institutions. International surveys show that so far there has been no adequate growth in awareness of the risks linked to climate change and the opportunities linked to the transition towards a low carbon economy. Evidence acquired on Climate-Related Financial Risk (CRFR) disclosure in Italy has confirmed the same conclusions. We have therefore identified three steps with the aim of encouraging financial institutions to take CRFR into account in their corporate risk management strategies: 1) create a information hub to gather the information required for assessing the CRFR; 2) compile a list of the information not yet available; 3) define standard methodologies that allow the climate scenarios to be part of the decision-making processes of financial institutions.

Editorial: Corporate governance through a prism of multi-disciplinary research

This volume of the journal “Corporate Ownership and Control” is focused on corporate governance, corporate social responsibility, earnings and performance management, ownership concentration, institutional ownership, audit fees, audit quality and independence, cross-cultural management and cultural dimensions, financial instruments risk disclosure, equity incentives, firm performance, shareholder composition and monitoring effects, etc. The topics addressed in this issue highlight the continuing need for knowledge present in academic and non-academic research. The papers published in this issue offer an additional point of view with regard to the most important corporate governance issues.

Analyzing the Effect of Board of Commissioners’ Characteristics, Managerial Ownership, and Financial Performance on Financial Risk Disclosure

<p>This study aims to examine the role of the board of commissioners’ characteristics, managerial ownership, and financial performance on financial risk disclosure. The target population of this study was sharia banks registered in the Indonesian banking directory in 2012-2016. This study used secondary data in the form of annual financial statements obtained from the source sites of each bank. Using purposive sampling, 11 sharia banks in Indonesia were selected as the appropriate sample. This study employed a scoring technique to measure the level of financial risk disclosure. The results show that the independent variables including the board of commissioners size, independent board of commissioners proportion, profitability, and size as the control variable significantly influenced the variable of FRD. However, the variable of CAR, FDR, and managerial ownership had no effect on financial risk disclosure. The result of F test showed that independent variables included in the regression model simultaneously affected the dependent variable.</p>

Strengthening Investment in Renewable Energy Sector Through Climate Related Financial Risk Disclosure

In current scenario financing, renewable energy projects in India continues to face multiple challenges. The problem is largely entitled to financial risks along with technology risk, policy risk, and regulatory risk, but do not disclose climate-related financial risk which has compounded the problem further. The objective of this study is to asses investors’ perceived risk while investing renewable energy projects and disclosure of such risks. Does climate risks are included and disclosed to financial institutions while investing to make project bankable and credible. Though several mechanisms developed over a time to mitigate financial and non-financial risks, the achievement is far below expectations. It is also found that there is a limited literature available on disclosure of climate-related financial risks and its mitigation measures in this sector. As a result, business and organizations in this sector are exposed to climate risks; its prolonged effect can generate systemic risk that can hinder economic growth. Therefore, this study proposes a climate risk assessment tool to disclose climate-related financial risks information along the supply chain of the project with other identified risks for investors, lenders, insurers and other stakeholders. Thereby, financial markets are in a better position to respond and manage climate-related risks. Thus, an increase in transparency makes financial markets more efficient and economies more stable and resilient against climate related financial risks.

Time to Act: Response to Questions Posed by the Expert Panel on Sustainable Finance on Fiduciary Obligation and Effective Climate-Related Financial Disclosures

While there are numerous strategies to be deployed to move Canada to a financially sustainable future, this study addresses two critically important issues: fiduciary obligation of corporate- and pension-fiduciaries, and national action on environmental, social and governance (“ESG”) financial disclosure, including climate-related financial risk disclosure. The Canadian economy is facing significant challenges and disruptions in the transition to a lower carbon world. Absent clear and innovative steps to ensure our corporations and financial institutions act to address carbon emissions and other environmental, social and governance risks and opportunities, we will be seriously prejudiced in a world that is rapidly moving towards greener and more sustainable economic activity. The study offers a comprehensive set of recommendations on these fiduciary obligations and disclosure, specifically, amending corporate, banking and insurance law to embed ESG factors, including climate-related risks and opportunities, in the fiduciary obligation of directors and officers. Institutional investors and asset managers, including pension funds and mutual funds, should be required to disclose how their portfolio management, voting and engagement activities are contributing to a lower carbon economy. The study endorses the TCFD disclosure framework, suggesting ow government could work with accounting standards setters and securities authorities to align climate-related financial disclosure. Imprecision in respect of information available on long-term climate-related financial risk or other ESG risks is not a bar to directors and officers acting now with a view to the best interests of the corporation. The Supreme Court of Canada has held that the defences of good faith and acting on a prudent and reasonable basis are very strong, even in the face of less than full information. Material ESG risks, costs and assets should be included in the company’s financial statements and notes thereto.

Climate financial risk disclosure requirements set to have a major impact on civil engineers

Lenders, insurers and credit agencies now require asset owners and contractors to disclose climate-related financial risks. Madeleine Rawlins at Mott MacDonald says considering emissions and physical resilience is now a professional obligation for civil engineers.

Global financial stability, rapid transition to a low-carbon economy and social justice: can climate-related financial risk disclosure do it all?

Global financial stability, rapid transition to a low-carbon economy and social justice: can climate-related financial risk disclosure do it all?

Financial Risk Disclosure and Financial Attributes among Publicly Traded Manufacturing Companies: Evidence from Bangladesh

We explore the relationship between the degree of financial risk disclosure and a firm’s financial attributes. Financial risk disclosure indices (FRDIs) are calculated based on a set of 30 disclosure identifiers through content analysis of the annual reports of 48 manufacturing companies over a six-year period (2010–2015) in Bangladesh. We find no common practice among the companies in disclosing financial risk by integrating a customized financial risk disclosure into their financial reporting process. The results indicate that firm size, financial performance, and auditor type are positively and significantly associated with the level of financial risk disclosure.

DETERMINAN FINANCIAL RISK DISCLOSURE: STUDI PADA PERUSAHAAN YANG TERDAFTAR DALAM MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) INDONESIA INDEXPERIODE 2014-2016

The purpose of this study is to examine the effect of corporate characteristics on financial risk disclosure in Indonesia at 2014-2016. The characteristics of the company in this study include firm size, industry type, auditor reputation, ownership concentration, profitability and leverage. Disclosure of financial risk refers to the research of Wibowo and Probohudono (2017) adapted from research by Atanasovski et al (2015), Oorschot (2010), and International Financial Reporting Standard (IFRS) No. 7 on financial instrument: disclosure. The introduction of IFRS 7 by the International Accounting Standards Board can improve the quality of financial risk disclosure practices that all financial reporting authors should undertake. The sample of this study is a company listed on MSCI (Morgan Stanley Capital International) Indonesia Index 2014-2016. The results of this study indicate that information about credit risk and liquidity is the most information disclosed by the company, while information on market risk is not much disclosed. In addition, the results of the study also concluded that firm size, type of industry and profitability variables influence the disclosure of financial risk. Other independent variables such as ownership and leverage concentration have no effect on the level of financial risk disclosure.

Corporate risk disclosure of Islamic and сonventional banks

This study examines the degree of the corporate risk disclosure and its impact on the banking performance using annual data of banks listed on the UAE financial markets: Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) during the period 2003–2013. The authors conduct the content analysis of the annual reports to measure the degree of the corporate risk disclosure. In addition, they use the panel data regressions to analyze the impact of the corporate risk disclosure on the performance of the banks. The results show low degree of the overall corporate risk disclosure index, strategic risk disclosure index, operational risk disclosure index, damage risk disclosure index, and risk management disclosure index for UAE listed banks. In addition, the results reveal significant differences in the overall corporate risk disclosure, strategic risk disclosure, financial risk disclosure, and risk management disclosure between conventional and Islamic banks. However, the effect of the degree of the overall corporate risk disclosure on the performance of UAE bank has been found insignificant. The findings of this paper contribute by providing a better understanding of risk disclosure practices in UAE and help the banks to optimally disclose their risk, improve the quality of their disclosure practices and enhance the quality of their financial reports. The impact of the corporate risk disclosure on the performance of the banks has not been examined by any of the prior researches. In addition, this paper examines the potential difference between Islamic and conventional banks in their corporate risk disclosure practices.

Corporate Risk Disclosure of Islamic and Conventional Banks

This study examines the degree of the corporate risk disclosure and its impact on the banking performance using annual data of banks listed on the UAE financial markets: Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) during the period 2003-2013. The authors conduct the content analysis of the annual reports to measure the degree of the corporate risk disclosure. In addition, they use the panel data regressions to analyze the impact of the corporate risk disclosure on the performance of the banks. The results show low degree of the overall corporate risk disclosure index, strategic risk disclosure index, operational risk disclosure index, damage risk disclosure index, and risk management disclosure index for UAE listed banks. In addition, the results reveal significant differences in the overall corporate risk disclosure, strategic risk disclosure, financial risk disclosure, and risk management disclosure between conventional and Islamic banks. However, the effect of the degree of the overall corporate risk disclosure on the performance of UAE bank has been found insignificant. The findings of this paper contribute by providing a better understanding of risk disclosure practices in UAE and help the banks to optimally disclose their risk, improve the quality of their disclosure practices and to enhance the quality of their financial reports. The impact of the corporate risk disclosure on the performance of the banks has not been examined by any of the prior researches. In addition, this paper examines the potential difference between Islamic and conventional banks in their corporate risk disclosure practices.

Does Risk Disclosure Reporting Quality Reduce Credit Risk?

This study aims to measure the degree of corporate risk disclosure and examines its impact on credit risk of banks listed on the UAE financial markets: Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) during the period 2007-2013. The results of the content analysis show low degree of the overall risk disclosure index and all the sub-risk categories except the financial risk disclosure for all, Islamic and conventional UAE banks and the market risk disclosure for Islamic banks. The effect of the degree of the risk disclosure on credit risk is examined by applying the robust Generalized Method of Moment System Estimation (GMM) to dynamic panel data. The results of the GMM show that the higher the disclosure of strategic risk, operational risk, and damage risk, the higher the credit risk for all UAE listed banks. In terms of comparison, the results also show significant differences in credit risk, strategic risk disclosure, firm’s damage risk disclosure, and risk management disclosure between conventional and Islamic banks.

Financial Risk Disclosure: Evidence From Albanian And Italian Companies

<p>In recent years standard setters, regulators and professional bodies worldwide have shown an increased interest in risk reporting. This has reflected the fallacy of the financial reporting model to communicate a company’s risk profile, the recent scandals and the financial crisis. The European Union, the International Accounting Standards Board (IASB) and other national standard settershave introduced specific requirements in order to impose companies to highlight the principal financial risks and uncertainties that they face.The idea is that high-quality risk disclosure help investors and other market participants in their decision-making process, by providing a better understanding of the risk exposures and risk management practices of companies.</p><p>Previous studies show large heterogeneity in risk reporting within individual countries and identify size as key determinant of risk disclosure. A few researches propose a cross-country investigation of risk reporting and to date there is a lack of evidence about companies operating in Southern Europe, especiallyin the Balkans.</p><p class="AbstractText">The aim of this study is twofold. First, we fill this gap by analyzingrisk reporting regulations in Albania and in Italy to examine the different requirements. Second, we examine risk information disclosed by a sample of 12 Albanian companies and 12 Italian companies within their annual reports, using content analysis. Due to small sample size we offer preliminary findings about financial risk disclosure. The results show that on average Albanian companies disclose less information on financial riskthan Italian companies. Different explanations can be given for this evidence: i) risk disclosure regulationis less incisive in Albania, because it is limited to inform investors about the relevance of financial instruments and the terms and conditions of loans; ii) Albanian companies have fewer incentives to disclose risk information than Italian companies.</p>

Risk disclosure practice in Saudi non-financial listed companies

This study makes a valuable contribution to the existing literature on corporate risk disclosure (RD) in emerging economies with a focus on the Saudi Arabian economy in the context of the Middle East. The vast majority of RD literature has placed emphasis on case studies and systems adopted in developed nations. This study undertakes a detailed analysis of RD practices in Saudi Arabian non-financial listed firms by adopting a quantitative approach for the collection and analysis of the datasets using a sample of non-financial firms listed on the Saudi Stock Exchange (Tadawal) over the period of 2010 to 2014. The study adopts a self-constructed unweighted risk disclosure index utilised in the measurement of risk disclosure. The index thus comprises of 11 main categories and a total of 47 sub-items. The main findings show that the average level of (RD) among all the samples is 17%, the maximum is 55%, and 10 firms did not make any RD at all, and of the majority that do, 63% of the information pertains to financial risk disclosure and related risks and the other 37% to non-financial risk disclosure. The trend for RD over the five-year period of study shows that most companies experienced an increase in their risk reporting activity.

Exploring Financial Risks from Corporate Disclosure: Evidence from Italian Listed Companies

The purpose of this paper is to contribute to the existing literature on corporate disclosure by exploring the quality of information on financial risks contained in the annual reports of a sample of non-financial companies listed on the Italian Stock Exchange. The analysis is based on a manual content analysis approach, used to measure the level of financial risk information presented in the annual reports of 50 companies and build a Grid Risk Report. The findings of this paper show the degree of financial risk disclosure, as well as what companies actually disclose in terms of financial risk indices in their Management Reports (in the section covering information on risks and uncertainties), in their Notes to the Financial Statements (in the section on risk management) and, possibly, in their Notes on the Financial Instruments, they hold for to cover risk, for the period between 2008 and 2013. The paper’s findings have practical implications for both stakeholders and managers, giving investors facts about the sort of Italian companies that disclose financial risk information as part of the risk information presented in their annual reports and managers information about the degree of financial risk disclosure that will satisfy their stakeholder disclosure demands.

Risk disclosure and cost of equity: The Spanish case

In this paper we make an empirical study of the relationship between risk disclosure and the cost of equity. In particular, the objective being pursued is to contrast whether or not the cost of equity for the company is related to its financial and non-financial risk disclosure. Our results show no statistically significant relationship between the latter and the cost of equity; and a statistically significant relationship, with a positive sign, between this cost and financial risk disclosure. This suggests that company risk disclosures appear to introduce unknown contingencies and risk factors rather than only update information about known risks.

The Information Content of Differences in Financial Constraints Risk Disclosure Requirements

We examine whether increased financial constraints risk factor disclosures during and after the financial crisis or in response to SEC comment letters reflect firms’ underlying financial constraints risk outcomes. We find that financial constraints risk factor disclosures are positively associated with ex-ante litigation risk and expected financial constraints levels before, during, and after the financial crisis. We also find that the association between disclosures and litigation risk is significantly greater during and after the financial crisis than that for the pre-crisis period. While we find that the financial constraints risk factor disclosures are positively associated with realized financial constraints outcomes for the pre-crisis period, we find no significant association between these disclosures and realized financial constraints outcomes during or after the financial crisis and this association reduces significantly from the pre-crisis to post-crisis period. Furthermore, we document that, while firms increase their financial constraints risk factor disclosures after receiving SEC comment letters, these disclosures are less reflective of realized financial constraints outcomes. Overall, our findings that increased financial constraints risk factor disclosures following the financial crisis and SEC comment letters are less reflective of the underlying economic risk suggest that sometimes less is more.

The Use of Derivatives in Italian SMEs: How to Avoid New Mistakes

This article explores the recent diffusion of derivatives in Italian SMEs. It focuses on the main causes of a number of critical situations and on some guidelines to possible resolutions. It also analyses the scope and limits set by recent legislation on derivatives in the balance sheet and on financial risk disclosure, with particular regard to the emerging role of supplementary disclosure.

Agency Problems, Auditing, and the Theory of the Firm: Some Evidence

Agency Problems, Auditing, and the Theory of the Firm: Some EvidenceAuthor(s): Ross L. Watts and Jerold L. ZimmermanSource: Journal of Law and Economics, Vol. 26, No. 3, (Oct., 1983), pp. 613-633Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/725039Accessed: 29/06/2008 23:14