The value relevance of risk disclosure in annual reports: evidence from MENA emerging markets

Our paper aims to examine whether voluntary risk disclosure in the annual report contains value-relevant information for investors to predict future earnings. We used a large-scale sample firms from MENA emerging markets. Our sample includes 809 year-observations for the three year period, 2007 to 2009. Our study offers two significant contributions. First, we found a positive relationship between voluntary risk information and the market’s ability to anticipate two years ahead future earnings change. The positive association provides us with the first empirical evidence of the usefulness of risk disclosure in annual reports. Second, we found that the level of proprietary costs tends to moderate the perceived relevance of risk information, thereby making investors rely on another source of information in forecasting future earnings change.