Risk disclosure and firm operational efficiency

Imen Derouiche (), Riadh Manita and Anke Muessig
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Imen Derouiche: University of Luxembourg
Riadh Manita: Neoma Business School
Anke Muessig: University of Luxembourg

Annals of Operations Research, 2021, vol. 297, issue 1, No 6, 115-145

Abstract: Abstract This paper examines the effect of risk disclosure on firm operational efficiency using a unique database of nonfinancial, and non-utility French firms belonging to the SBF 120 index over the period 2007–2015. In a first step, we use a data envelopment analysis output-oriented variable returns to scale model to determine firm operational efficiency scores based on one output (i.e., sales revenue) and three inputs (i.e., net property, plant, and equipment; cost of goods sold; and selling, general, and administrative costs). These scores are used in a second step to estimate the effect of risk disclosure on operational efficiency after controlling for a set of other factors. The empirical results show a statistically significant positive relation between risk disclosure and operational efficiency, suggesting that firms tend to be relatively more efficient when they disclose more about their risk exposure. Overall, we provide evidence that firms with greater risk disclosure are seen by stakeholders as more credible and trustworthy, leading them to conduct better transactions and, consequently, to improve their operational efficiency. This result is consistent with the notion that stakeholders perceive transparent firms positively, particularly those revealing bad news.

Keywords: Risk disclosure; Negative tone; Data envelopment analysis; Operational efficiency; Stakeholders (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10479-020-03520-z

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