Is voluntary risk disclosure informative? The role of UK firm-level governance
International Journal of Productivity and Performance Management
ISSN: 1741-0401
Article publication date: 3 October 2023
Abstract
Purpose
The study investigates how firm-level governance (FL_G) affects the disclosure of voluntary risk information. Likewise, it explores the influence of FL_G on the informativeness of voluntary risk disclosure (VRD). Specifically, it examines how FL_G shapes the nexus between VRD and firm value.
Design/methodology/approach
It uses a sample of non-financial firms from the FTSE350 index listed on the London Stock Exchange between 2010 and 2018. The authors utilise an automated textual analysis technique to code the VRD in the annual reports of these firms. The firm value, adjusted for the industry median, is a proxy for investor response to VRD.
Findings
The results suggest that UK firms with significant board independence and larger audit committees disclose more risk information voluntarily. Nevertheless, firms with larger boards of directors and higher managerial ownership disseminate less voluntary risk information. Besides, VRD contains relevant information that enhances investors' valuation of UK firms. These results are more pronounced in firms with higher independent directors, lower managerial ownership and large audit committees.
Practical implications
The study rationalises the ongoing debate on the effect of FL_G on VRD. The findings are helpful to UK policy-setters in reconsidering the guidelines that regulate UK VRD and to the UK investors in considering risk disclosure in their price decisions and thus enhancing their corporate valuations.
Originality/value
It contributes to the risk reporting literature in the UK by presenting the first evidence on the effect of a comprehensive set of FL_G on VRD. Besides, it enriches the existing research by shedding light on the role of FL_G on the informativeness of discretionary risk information in the UK.
Keywords
Acknowledgements
The authors would like to thank Professor Luisa Huaccho Huatuco (The Editor of IJPPM), the Associate Editor and the anonymous referees for their valuable comments and suggestions. Likewise, this paper has benefited from the comments and suggestions of the reviewer committees and participants at the 8th Paris Financial Management Conference (PFMC-2022), Paris, France (December 2022).
All authors declare that they have no conflict of interest.
There is no funding for this project. Data were collected from the participants and are available upon request.
Citation
Elsayed, N. and Hassanein, A. (2023), "Is voluntary risk disclosure informative? The role of UK firm-level governance", International Journal of Productivity and Performance Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJPPM-09-2022-0486
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited