Determinants of narrative risk disclosures in UK interim reports

By Hany Elzahar, K. Hussainey. 2012

394 citations recorded by the source corpus.

Purpose - The purpose of this paper is to contribute to the existing disclosure literature by examining the determinants of narrative risk information in the interim reports for a sample of UK non-financial companies. Design/methodology/approach - This study uses the manual content analysis to measure the level of risk information in interim report narrative sections prepared by 72 UK companies. It also uses the ordinary least squares regression analysis to examine the impact of firm-specific characteristics and corporate governance mechanisms on narrative risk disclosures. Findings - The empirical analysis shows that large firms are more likely to disclose more risk information in the narrative sections of interim reports. In addition, the analysis shows that industry activity type is positively associated with levels of narrative risk disclosure in interim reports. Finally, the analysis shows statistically insignificant impact of other firm-specific characteristics (liquidity, gearing, profitability, and cross-listing) and corporate governance mechanisms on narrative risk disclosure. Practical implications - The study's findings have practical implications. It informs investors about the characteristics of UK companies that disclose risk information in their interim reports. For example, the findings show that narrative risk disclosures are affected by firm size and industry type rather than firms' risk levels (e.g. financing risk measured by the gearing ratio or liquidity risk measured by lower liquidity ratios). Practical implications for managers from these findings are that, in order to keep investors satisfied, companies with high levels of financing and liquidity risks should look at investors' demands for risk disclosure. This will help investors when making their investment decisions. Originality/value - The determinants of narrative risk disclosure in interim reports have not been explored so clearly in prior research and, therefore, this paper is the first of its kind to examine this research issue for a sample of UK companies.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a79a16c372d8aaf6c7e108f63859bfd552a8b64e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Strategy and Management

Citations in the corpus

An Analysis of Corporate Social Responsibility and Firm Performance with Moderating Effects of CEO Power and Ownership Structure: A Case Study of the Manufacturing Sector of Pakistan (2019, background): “Agency theory proposes that extra incentives encourage institutional investors to observe ﬁrm disclosure strategies and monitor management decisions in a better way because of experience and resources [125,134].”
Corporate governance and risk disclosure: evidence from Saudi Arabia (2019, neutral): “The content analysis gained a greater validity and wide fame in the disclosure studies (e.g. Linsley and Shrives, 2006; Abraham and Cox, 2007; Abdel-Fattah, 2008; Kothari et al. 2009; Elzahar and Hussainey, 2012).”
The impact of multi-layer governance on bank risk disclosure in emerging markets: the case of Middle East and North Africa (2019, background): “Whilst a considerable number of studies have examined the impact of general ﬁ rm characteristics, such as ﬁ rm size on the level of risk disclosure (Elzahar & Hussainey, 2012; Mokhtar & Mellett, 2013; Rajab & Handley-Schachler, 2009), few studies have investigated the impact of governance variables…”
Corporate Boards, Ownership Structures and Corporate Disclosures: Evidence from a Developing Country (2018, neutral): “Empirically, Eng and Mak (2003) and Wang and Hussainey (2013) found a negative association between director ownership and voluntary disclosure.”
Corporate governance and corporate social responsibility disclosure: evidence from Saudi Arabia (2016, background): “This result is consistent with agency theory that larger firms need to disclose more information in order to reduce the larger information asymmetry and agency costs (Elzahar & Hussainey, 2012).”
Determinants of forward-looking disclosures in integrated reporting (2018, background): “In addition, Elzahar and Hussainey (2012) stated that industrial company ’ s reports make more risk disclosure compared to service companies.”
The association between risk disclosure and firm characteristics: a meta-analysis (2016, background): “…disclosure (e.g. Abraham and Cox 2007; Deumes and Knechel 2008; Iatridis 2008; Hassan 2009; Elshandidy, Fraser, and Hussainey 2013), other research papers do not find a significant association between the two variables (Elzahar and Hussainey 2012; Miihkinen 2012; Ntim, Lindop, and Thomas 2013).”