Clarity in Crisis: How UK Firms Communicated Risks during COVID-19

Ahmed Saber Moussa () and Mahmoud Elmarzouky
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Ahmed Saber Moussa: Ministry of Finance Egypt, Nasr City, Cairo 11635, Egypt
Mahmoud Elmarzouky: St Andrews Business School, University of St Andrews, The Gateway, North Haugh, St Andrews KY16 9RJ, UK

JRFM, 2024, vol. 17, issue 10, 1-21

Abstract: This study explores the influence of risk disclosure levels and types on the readability of annual reports of non-financial firms in the UK during the COVID-19 outbreak. It further investigates how the disclosure of COVID-19-related information moderates the relationship between risk disclosure and readability. The study uses a content analysis approach and CFIE software to measure the level of risk disclosure and readability in the annual reports of non-financial firms listed on the FTSE all-share from 2019 to 2021. The results show a positive and significant effect of risk disclosure level on readability, which is stronger for firms that disclosed COVID-19 information. Different types of risk disclosure have varying effects on readability, with COVID-19 risk, credit risk, and strategic risk positively affecting readability, while operational risk negatively affects it. The study contributes to the literature on information asymmetry and institutional theory by demonstrating how risk disclosure and readability are influenced by external factors like the COVID-19 outbreak and internal factors such as firm characteristics and types of risks. It introduces a new risk definition and category specific to the COVID-19 pandemic and develops new measurements for risk disclosure, including credit, liquidity, market, operational, business, strategic, and COVID-19 risks. The study provides valuable insights for managers, investors, regulators, and standard setters on the relationship between risk disclosure and readability in annual reports. It highlights the importance of disclosing COVID-19-related information to enhance the readability and understandability of financial communication. The paper contributes to the literature and practice on risk disclosure, readability, and financial communication during crises.

Keywords: risk disclosure; COVID-19 disclosure; readability; textual analysis; information asymmetry; institutional theory (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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