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.

Risk Information in Non-Financial Disclosure

This paper aims to research the topics related to risk included in non-financial disclosure (NFD) of companies listed on the Warsaw Stock Exchange (WSE) and explore factors that influence the risk topics ratio in NFD. We applied a content analysis using topic modeling to discover latent risk topics in NFD. Next, with Ward’s clustering, we identified four groups of companies with a homogenous risk topic mixture. For causal analysis, to explain the differences in risk topics ratio, we used qualitative comparative analysis (QCA), which allowed us to obtain three paths (variable configurations) leading to the high ratio of risk topics in NFD. Our results suggest that companies disclosing risk information extensively in their NFDs concentrate almost solely on social risk matters. In contrast, companies talking briefly about environmental and social (E&S) risk prepare their NFDs with a more balanced distribution of E&S topics and their financial implication. In general, the companies’ exposure to E&S risk and the use of NFD standards and guidelines as well as the type of NFD impact the space dedicated to risk information. This paper contributes to academics and regulators, filling the gap about risk disclosure in the NFD, identifying the nature of corporate risk disclosures, and upgrading research about determinants of risk information in non-financial disclosure.

MEKANISME CORPORATE GOVERNANCE DAN RISK DISCLOSURES: STUDI PADA ANNUAL REPORT BANK DEVISA DI INDONESIA

Otoritas Otoritas Jasa Keuangan telah menyusun Roadmap Keuangan Berkelanjutan dalam jangka panjang 2020-2024 yang menekankan pada integrasi risk management, corporate governance, penilaian tingkat kesehatan bank dan keuangan berkelanjutan. Penelitian ini bertujuan menguji pengaruh mekanisme corporate governance terhadap risk disclosures pada 11 bank devisa yang terdaftar di Bursa Efek Indonesia dalam era Roadmap Keuangan Berkelanjutan dengan menggunakan analisis regresi berganda data panel Generalized Least Square. Metode content analysis digunakan pada annual report periode 2015-2020 untuk menilai risk disclosures. Hasil penelitian mengungkapkan bahwa frekuensi rapat dewan komisaris, ukuran komite audit, dan frekuensi rapat komite audit sebagai proksi dari mekanisme corporate governance berpengaruh signifikan terhadap risk disclosures. Temuan penelitian ini mengimplikasikan bahwa hadirnya struktur pengawasan dalam suatu perusahaan berperan penting dalam mendeteksi risk disclosures.

Impact of risk disclosures on IPO performance: Evidence from India

The main aim of the paper is to explore the performance of Indian IPOs in the context of risk disclosures in the offer documents. For the purpose of assessing the impact of risk disclosure factors on initial returns, subsequent returns and post issue risk of IPOs, the study has implemented ordinary least square regression. The study has analysed 109 IPOs that were listed in two main Indian stock exchanges (BSE and NSE) from 2015–2019. Outcomes of the present study are contrary to the previous studies which showed that information disclosure reduces the asymmetry, which is touted as the main reason for underpricing, the present study did not find any association between risk disclosures and underpricing. Quantitative risk measures showed positive association with 1-year returns, but qualitative measures failed to show any association. The post issue risk of the firms showed positive association with external risk factors listed in prospectus and negative association with liquidity. The results of this study are useful for the investors as based on the results they can make decisions about investing in Indian IPOs. Besides, the managers of issuing companies and lead managers of issues can use the results of this study to improve the pricing of issues. To the best of the authors’ knowledge no study has been done before in the Indian context which is specific to risk disclosures (quantitative and qualitative measures) and IPO performance. The present study seeks to fill this gap and contribute to the existing literature.

Firm’s size, mandatory adoption of IFRS and corporate risk disclosure among listed non-financial firms in Saudi Arabia

This study examines the relationship between the mandatory adoption of International Financial Reporting Standards (IFRS) and the disclosures of corporate risk among non-financial firms in Saudi Arabia. Based on the observation of 320 firm-year from 2015 until 2017, this study reveals a positive relationship between the mandatory adoption of IFRS and the corporate risk disclosures. The relationship holds when we decompose corporate risk disclosures into financial and non-financial risk disclosures. The results are consistent for both the pooled Ordinary Least Squares (OLS) and random effects estimations. Additionally, the result is steady with all primary categories except risk management. We also provide evidence that large firms are more likely to adopt IFRS and reveal more risk information than small firms. This study’s findings are relevant for market regulators in their attempt to improve corporate risk disclosures among listed firms in Saudi Arabia.

The Perception of Risk Disclosure Characteristics on the Credit Default Swap Market - An Automated Analysis

This paper evaluates the associations between credit default swap (CDS) spreads and risk disclosure characteristics, especially the expected qualitative and the expected quantitative impacts of risks on companies' future performance and information on risk management. We find that CDS investors can benefit from information on expected risk impacts and from information on risk management, which is important for the current discussion of the Securities and Exchange Commission (SEC) on risk disclosure regulation. However, for companies, the disclosure of such information can be either beneficial or costly, depending on the initial risk perception of CDS investors prior to the publication of risk disclosures and on the disclosed risk factors. Furthermore, we expand the literature by automatically measuring the mentioned risk disclosure characteristics using dictionary-based approaches.

“Red” and “green” flags of risk disclosures – identifying associations between positive and negative key phrases and consecutive cumulative abnormal stock returns

Purpose The usefulness of risk disclosures (RDs) to support equity investors’ investment decisions is highly discussed. As prior research criticizes the extensive aggregation of risk information in existing empirical research, this paper aims to provide an attempt to identify disaggregated risk information associated with cumulative abnormal stock returns (CARs). Design/methodology/approach The sample consists of 2,558 RDs of companies listed in the S&P 500 index. The RDs were filed within 10 K filings between 2011 and 2017. First, this study automatically extracted 35,685 key phrases that occurred in a maximum of 1.5% of the RDs. Second, this study performed stepwise regressions of these key phrases and identified 67 (78) key phrases that show positive (negative) associations with CARs. Findings The paper finds that investors seem to value most the more common key phrases just below the 1.5% rarest key phrase threshold and business-related key phrases from RDs. Furthermore, investors seem to perceive key phrases that contain words indicating uncertainty (impacts) as a negative (positive) rather than a positive (negative) signal. Research limitations/implications The research approach faces limitations mainly due to the selection of the included key phrases, the focus on CARs and the methodological choice of the stepwise regression analysis. Originality/value The study reveals the potential for companies to increase the information value of their RDs for equity investors by providing tailored information within RDs instead of universal phrases. In addition, the research indicates that the tailored RDs encouraged by the SEC contain relevant information for investors. Furthermore, the results may guide the attention of equity investors to relevant text passages whose deeper analysis might be useful with regard to investors’ capital market decisions.

Comparing the Cybersecurity Risk Disclosures of US and Foreign Firms

This study explores the cybersecurity risk disclosure differences between foreign firms listed in the US and US firms. We first extract cybersecurity risks disclosures text with a Python program based on a list of cybersecurity key words. We then perform textual analysis of the cybersecurity risk disclosures in foreign firms’ 20-F filings and US firms’ 10-K filings. During our study period, we observe that foreign firms disclose more about their cybersecurity risks and their disclosures are more readable than US firms. Foreign firms also use more numbers, fewer uncertainty words and fewer litigious language than their US counterparts. In general, our study suggests that cybersecurity risk disclosures made by foreign firms are clearer and more specific than those made by US firms. This finding could have implications for disclosure regulation and home bias research.

Investors’ Responses on SOE’s Liquidity Risk Disclosures: Case of Indonesia

This study aims to examine the value relevance of liquidity risk disclosure of Indonesia listed state owned enterprises after Indonesia Statement of Financial Accounting Standard, Disclosure of Financial Instruments (Revised in 2010 and 2014). This study uses 20 Indonesia listed state owned enterprises during period of 2012-2017 or 115 firm years as final samples. Using panel data analysis, this study shows that liquidity risk disclosure is relevant information for investors in Indonesia stock exchange. Investors response differently on liquidity risk disclosure before and after the announcement windows period of financial reports. The main contribution of this is examining the value relevance of liquidity risk disclosure of Indonesia listed state owned enterprises.