Risk Disclosures in the Annual Reports of Italian Listed Companies

Journal title FINANCIAL REPORTING
Author/s Lorenzo Neri, Antonella Russo
Publishing Year 2014 Issue 2013/3-4
Language English Pages 28 P. 141-168 File size 284 KB
DOI 10.3280/FR2013-003007
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

The study examines the relevance of risk reporting in the field of firm voluntary disclosure with an empirical work on Italian listed firms. The motivation of this study is the implementation of the Directive 51/2003/CE in Italy (D.Lgs. 32/2007), a sample of companies listed on the Italian Stock Exchange is selected to investigate the relationship between risk disclosure and company characteristics. This paper explores whether there are significant increases in risk reporting over a period of five years and investigates if risk disclosure is influenced only by new law requirement or also by other possible drivers. A content analysis is performed to obtain a measure of risk narrative disclosure. Then several hypothesis tests are carried out to verify whether there are any corporate differences between companies with different levels of risk disclosure, using univariate and multivariate analysis. Our results on the first question document significant increases in Italian companies’ levels of risk disclosures. We find also that the disclosure is not only determined by the new law requirements but also by other drivers such as company size.

Keywords: Risk; corporate disclosure; risk reporting; content analysis. First submission: 26 June 2012 accepted: 10 September 2013.

  1. Abraham S. and Cox P. (2007), Analysing the determinants of narrative risk information in UK FTSE 100 annual reports, The British Review, 39(3), pp. 227-248, DOI: 10.1016/j.bar.2007.06.002
  2. Ahmed K. and Courtis J. K. (1999), Associations between corporate characteristics and disclosure levels in annual reports: a meta-analysis, British Accounting Review, 31, pp. 35-61, DOI: 10.1006/bare.1998.0082
  3. American Institute of Certified Public Accountants (AICPA) (1987), Report of the Task Force on Risks and Uncertainties. (New York).
  4. American Institute of Certified Public Accountants (AICPA) (1994), Improving Business Reporting – A Customer Focus. (New York).
  5. Beattie V., Dhanani A. and Jones M. (2008), Investigating presentational change in UK annual reports: A longitudinal study, Journal of Business Communication, 45(2), pp. 181-222, DOI: 10.1177/0021943607313993
  6. Beattie V., Mcinnes W. and Fearnley S. (2004), A methodology for analysing and evaluating narratives in annual reports: a comprehensive descriptive profile and metrics for disclosure quality attributes, Accounting Forum, 28(3), pp. 205-236, DOI: 10.1016/j.accfor.2004.07.001
  7. Beretta S. and Bozzolan S. (2004), A framework for the analysis of firm risk communication, The International Journal of Accounting, 39(3), pp. 265-288, DOI: 10.1016/j.intacc.2004.06.006
  8. Beretta S. and Bozzolan S. (2008), From internal auditing to enterprise risk management: the case of Telecom Italia Group in M. Woods, P. Kajuter and P. Linsley (ed), International Risk Management. (London: CIMA Publishing), pp. 49-76.
  9. Boesso G. and Kumar K. (2007), Drivers of corporate voluntary disclosure: a framework and empirical evidence from Italy and United States, Accounting Auditing & Accountability Journal, 20(2), pp. 269-296, DOI: 10.1108/ 09513570710741028
  10. Bowman E. H. (1984), Content analysis of annual reports for corporate strategy and risk, Interfaces, 14, pp. 61-71, DOI: 10.1287/inte.14.1.61
  11. Cabedo J. and Tirado J. (2004). The disclosure of Risk in Financial Statements, Accounting Forum, 28(2), pp. 181-200, DOI: 10.1016/j.accfor.2003.10.002
  12. Campbell D. and Slack R. (2008), Narrative reporting: analysts’ perceptions of its value and relevance, The association of chartered Certified Accountants.
  13. Canadian Institute of Chartered Accountants (CICA) (2001) (Review Draft), Management’s Discussion and Analysis: Guidance on Preparation and Disclosure.
  14. Carmines E. G. and Zeller R. A. (1991), Reliability and Validity Assessment. (London: Sage).
  15. Chavent M., Ding Y., Stolowy H. and Wang H. (2006), Disclosure and determinats studies: an extension using divisive clustering method (DIV), European Accounting Review, 15(2), pp. 181-218, DOI: 10.1080/09638180500253092
  16. Courtis J. K. (1998), Annual report readability variability: tests of the obfuscation hypothesis, Accounting, Auditing & Accountability Journal, 11(4), pp. 459-472, DOI: 10.1108/09513579810231457
  17. Craswell A. T. and Taylor S. L. (1992), Discretionary disclosure of reserves by oil and gas companies: An economic analysis, Journal of Business Finance & Accounting, 19(2), pp. 295-308, DOI: 10.1111/j.1468-5957.1992.tb00626.x
  18. Crouhy M., Galai D. and Mark R. (2001), Risk management. (New York: McGraw-Hill).
  19. Davison J. (2008), Repetition, rhetoric, reporting and the ‘dot.com’ era: Words, pictures, intangibles, Accounting, Auditing & Accountability Journal, 21(6), pp. 791-826, DOI: 10.1108/09513570810893254
  20. Depoers F. (2000), A cost-benefit study of voluntary disclosure: Some empirical evidence from French listed companies, European Accounting Review, 9(2), pp. 245-263, DOI: 10.1080/09638180050129891
  21. Deumes R. (2008), Corporate risk reporting: a content analysis of narrative risk disclosures in prospectuses, Journal of Business Communication, 45(2), pp. 120-157, DOI: 10.1177/0021943607313992
  22. Deumes R. and Knechel W. R. (2008), Economic incentives for voluntary reporting on internal risk management and control systems, Auditing: A Journal of Practice and Theory, 27(1), pp. 35-66.
  23. Dobler M. (2008), Incentives for risk reporting – a discretionary disclosure and cheap talk approach, The International Journal of Accounting, 43(2), pp. 184-206, DOI: 10.1016/j.intacc.2008.04.005
  24. Donnelly R. and Mulcahy M. (2008), Board Structure, Ownership, and Voluntary Disclosure in Ireland, Corporate Governance: An International Review, 16(5), pp. 416-429.
  25. German Accounting Standards Committee (2001), E-Gas 5, Risk Reporting.
  26. Fluck Z. (1998), Optimal financial contracting: Debt versus outside equity, Review of Financial Studies, 11(2), pp. 383-418, DOI: 10.1093/rfs/11.2.383
  27. Giner B. (1997), The influence of company characteristics and accounting regulation on information disclosed by Spanish firms, European Accounting Review, 16(1), pp. 45-68.
  28. Gul F. A. and Leung S. (2004), Board leadership, outside directors’ expertise and corporate voluntary disclosure, Journal of Accounting and Public Policy, 23(5), pp. 351-379, DOI: 10.1016/j.jaccpubpol.2004.07.001
  29. Hassan O., Romilly P., Giorgioni G. and Power D. (2009), The value relevance of disclosure: evidence from the emerging capital market of Egypt, International Journal of Accounting, 44, pp. 79-102, DOI: 10.1016/j.intacc.2008.12.005
  30. Healy P. M. and Palepu K. G. (2001), Information asymmetry, corporate disclosure and the capital markets: a review of the empirical disclosure literature, Journal of Accounting and Economics, 31, pp. 405-440, DOI: 10.1016/S0165-4101(01)00018-0
  31. Inchausti B. G. (1997), The influence of company characteristics and accounting regulation on information disclosed by Spanish firms, European Accounting Review, 6(1), pp 45-68, DOI: 10.1080/096381897336863
  32. Institute of Chartered Accountants in England and Wales (ICAEW) (1997), Financial Reporting of Risk. Proposal for a Statement of Business Risk. (London).
  33. Institute of Chartered Accountants in England and Wales (ICAEW) (1999a). No Surprises. The Case for Better Risk Reporting. (London).
  34. Institute of Chartered Accountants in England and Wales (ICAEW) (1999b). Internal Control, Guidance for Directors on Combined Code. (London).
  35. International Accounting Standards Board (IASB) (2010), Management Commentary – A framework for presentation. (London).
  36. Jorgensen B. N. and Kirscenheiter M.T. (2003), Discretionary risk disclosure, Accounting Review, 78, pp. 449-469, DOI: 10.2308/accr.2003.78.2.449
  37. Jorion P. (2002), How informative are value-at-risk disclosures?, The Accounting Review, 77(4), pp. 911-931, DOI: 10.2308/accr.2002.77.4.911
  38. Kajüter P. (2001), Risikoberichterstattung: Empirische Befunde und der Entwurf des DRS 5, Der Betrieb, 54(3), pp. 105-111 (translation: Risk Reporting: Empirical Findings and Draft of DRS 5).
  39. Kajüter P. and Winkler C. (2003), Die Risikoberichterstattung der DAX100-Unternehmen im Zeitvergleich, Zeitschrift für internationale und kapitalmarktorientierte Rechnungslegung, 3(5), pp. 217-228.
  40. Krippendorf K. (1980), Content analysis: an introduction to its methodology. (London: Sage).
  41. Lajili K. and Zeghal D. (2005), A content analysis of risk management disclosures in Canadian annual reports, Canadian Journal of Administrative Sciences, 11(2), pp. 125-142.
  42. Li F. (2008), Annual report readability, current earnings, and earnings persistence, Journal of Accounting and Economics, 45(2/3), pp. 221-247, DOI: 10.1016/j.jacceco.2008.02.003
  43. Li F. (2010), The information content of forward-looking statements in corporate filings-A Naïve Bayesian Machine Learning Approach, Journal of Accounting Research, 48(5), pp. 1049-1102, DOI: 10.1111/j.1475-679X.2010.00382.x
  44. Li F. (2011), Textual analysis of corporate disclosures: A survey of the literature, Journal of Accounting Literature, 29, pp. 143-165.
  45. Lim S., Matolcsy Z. and Chow D. (2007), The association between board composition and different types of voluntary disclosure, European Accounting Review, 16(3), pp. 555-583, DOI: 10.1080/09638180701507155
  46. Linsley P. M. and Shrives P. J. (2000), Risk management and reporting risk in the UK, Journal of Risk, 3(1), pp. 115-129.
  47. Linsley P. M. and Shrives P. J. (2006), Risk reporting: a study of risk disclosures in the annual reports of UK companies, The British Accounting Review, 38(4), pp. 387-404, 10.1016/j.bar.2006.05.002.
  48. Linsley P. M. and Lawrence M. J. (2007), Risk reporting by the largest UK companies: readability and lack of obfuscation, Accounting, Auditing and Accountability Journal, 20, pp. 620-627, DOI: 10.1108/09513570710762601
  49. Marshall A. and Weetman P. (2007), Modelling transparency in disclosure: the case of foreign exchange risk management, Journal of Business finance & Accounting, 34(5-6), pp. 705-739, DOI: 10.1111/j.1468-5957.2007.02007.x
  50. Miihkinen A. (2012), What Drives Quality of Firm Risk Disclosure? The Impact of a National Disclosure Standard and Reporting Incentives under IFRS, The International Journal of Accounting, 47, pp. 437-468, DOI: 10.1016/j.intacc.2012.10.005
  51. Milne M. J. and Adler R. W. (1999), Exploring the reliability of social and environmental disclosures content analysis, Accounting, Auditing and Accountability Journal, 12(2), pp. 237-256, DOI: 10.1108/09513579910270138
  52. Mohobbot A. M. (2005), Corporate risk reporting practices in annual reports of Japanese companies, Japanese Journal of Accounting, 16(1), pp. 113-133.
  53. Quagli A. (2004), Comunicare il futuro – L’informazione economico finanziaria di tipo previsionale delle società quotate italiane. (Milano: FrancoAngeli).
  54. Raffournier B. (1995), The determinants of voluntary financial disclosure by Swiss listed companies, European Accounting Review, 4(2), pp. 261-280, DOI: 10.1080/09638189500000016
  55. Solomon J. F., Solomon A. and Norton S. (2000), A conceptual frame work for corporate risk disclosure emerging from the agenda for corporate governance reform, The British Accounting Review, 32(4), pp. 447-478, DOI: 10.1006/ bare.2000.0145
  56. Subramaniam N., McManus L. and Zhang J. (2009), Corporate governance, firm characteristics and risk management committee formation in Australian companies, Managerial Auditing Journal, 24(4), pp. 316-339, DOI: 10.1108/ 02686900910948170
  57. Sydserff R. and Weetman P. (1999), A texture index for evaluating accounting narratives: An alternative to readability formulae, Accounting, Auditing and Accountability Journal, 12(4), pp. 459-488, DOI: 10.1108/09513579910283503
  58. Sydserff R. and Weetman P. (2002), Developments in content analysis: A transitivity index and DICTION scores, Accounting, Auditing and Accountability Journal, 15(4), pp. 523-545, DOI: 10.1108/09513570210440586
  59. Verrecchia R. (2001), Essay on disclosure, Journal of Accounting and Economics, 32, pp. 97-180, DOI: 10.1016/S0165-4101(01)00025-8
  60. Welker M. (1995), Disclosure policy, information asymmetry and liquidity in equity markets, Contemporary Accounting Research, 11(2), pp. 801-827, DOI: 10.1111/j.1911-3846.1995.tb00467.x

Lorenzo Neri, Antonella Russo, Risk Disclosures in the Annual Reports of Italian Listed Companies in "FINANCIAL REPORTING" 3-4/2013, pp 141-168, DOI: 10.3280/FR2013-003007