Abstract
This study provides major contributions to the disclosure literature. First, the study provides the first systematic literature review study for the Risk Disclosure extant research. This review study covers 103 articles conducted on both non-financial firms and banks during 1999-2016. Second, the study contributes by formulating a new definition for Risk Disclosure and by measuring risk disclosure level using new keywords that are used for the first time in the disclosure literature. Third, the study contributes by providing empirical evidence on the economic usefulness of risk disclosure by investigating its influence on the subsequent cost of capital and market firm value.The study examines a sample of 328 UK non-financial firms listed on FTSE-All Share Index during 2005-2016. The study employed five different regression categories (Ordinary Least Squares, Quantile, Tobit, Generalised Least Squares, and Robust Regressions) to examine the influence of risk disclosure measured by four different scores. The first score measures the risk disclosure based on the risk definition as negative outcomes, the second is based on the risk definition as both negative and positive outcomes, and the third is based on the risk definition as a variation around a target, while the final is a comprehensive measure incorporating all the first three scores.
The review study provides important implications for academics. The first empirical study provides a partial evidence on the positive influence of risk disclosure level on the subsequent cost of capital measured by both cost of debt and cost of equity capital. The second empirical study provides a full evidence on the positive influence of risk disclosure level on the subsequent market firm value measured by both Tobin’s Q and Market-to-Book value of equity.
The study results provide important implications to several interested parties. The results encourage the managers to provide additional risk information due to the economic usefulness of risk disclosure proved by this study. The accounting standards regulators should recognise the economic usefulness of risk disclosure and start thinking about issuing a standalone new accounting standard for risk disclosure similar to that issued in Germany in 2001 under the name “Risk Reporting”. The governance regulators should also assert the importance of risks disclosure and mandate managers to disclose about business risks. Finally, the review and empirical studies provide important recommendations and ideas for future research.
| Date of Award | 28 Sept 2017 |
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| Original language | English |
| Supervisor | Khaled Hussainey (Supervisor) |