Aggregated, voluntary, and mandatory risk disclosure incentives: Evidence from UK FTSE all-share companies

Tamer Elshandidy, Ian Fraser and Khaled Hussainey ()

International Review of Financial Analysis, 2013, vol. 30, issue C, 320-333

Abstract: This paper investigates the impact of corporate risk levels on aggregated, voluntary and mandatory risk disclosures in the annual report narratives of UK non-financial listed companies. We find that firms characterised by higher levels of systematic, financing risks and risk-adjusted returns and those with lower levels of stock return variability are likely to exhibit significantly higher levels of aggregated and voluntary risk disclosures. The results also show that firms of large size, high dividend-yield, high board independence, low (high) insider (outsider) ownership, and effective audit environments are likely to exhibit higher levels of aggregated and voluntary risk disclosures than other firms. Similarly, mandatory risk disclosures are influenced positively by firm size, dividend-yield and board independence and negatively by high leverage. The results suggest that managers of firms exhibiting greater compliance with mandatory regulations have a greater propensity to make voluntary risk disclosures. When we distinguish between high- and low-risk firms, we find that high-risk firms appear to be more sensitive to underlying risk levels, resulting in more disclosure of both voluntary and mandatory risk information than in the case of low-risk firms. The results generally support the present UK emphasis on encouraging rather than mandating risk disclosure. Nevertheless, under this regime, the voluntary risk disclosures of some firms, e.g., those characterised by higher-volatility market returns, do not reflect their underlying risk levels.

Keywords: Aggregated; Voluntary; Mandatory risk disclosures; Automated content analysis; LMM; High- and low-risk firms (search for similar items in EconPapers)
JEL-codes: G32 M41 M48 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:30:y:2013:i:c:p:320-333

DOI: 10.1016/j.irfa.2013.07.010

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