Mandatory adoption of business risk disclosure: evidence from Japanese firms

Hyonok Kim, Yukihiro Yasuda and 行宏 安田

No G-1-14, Working Paper Series from Hitotsubashi University Center for Financial Research

Abstract: We take advantage of institutional changes and its characteristics in Japan to empirically examine mandatory business risk disclosure. We find that there is a negative impact on total risk from the introduction of mandatory business risk disclosure. This suggests that an increase in business risk disclosure reduces a firm's cost of capital, which is contrary to the results of previous research. However, we also find that there is a positive relationship across firms and years after inception between the amount of business risk disclosure and total risk, indicating that mandatory business risk disclosure has a negative impact on investors' assessment of firms' risk. Although these two effects offset each other, the positive effects of enhanced disclosure of business risks on the cost of capital overcome the negative effects.

Keywords: Mandatory business risk disclosure; Total risk; Cost of capital (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-05
New Economics Papers: this item is included in nep-acc, nep-bec and nep-rmg
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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27921/070hcfrWP_1_014.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hcfrwp:g-1-14

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