Are risk disclosures an effective tool to increase firm value?

Bravo, Francisco

doi:10.1002/mde.2850

Cited by 37 publications

(39 citation statements)

References 71 publications

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“…Differently from some previous studies that provided evidence of positive correlation between improved NFI and financial performance [22][23][24][25], the multivariate regression used to test the hypothesis has provided evidence that there is no association between the preparation of NFI and the financial and market performance of the companies, both in the current year of first adoption (2017) as well as the following one (2018). Therefore, these findings provide a first evidence that the nonfinancial disclosure, for the companies that prepare it in a context of mandatory disclosure, does not entail directly observable advantages on the accounting-based variable of financial performance ROA and on the market-based one in Tobin's Q.…”

Section: Discussionmentioning

confidence: 76%

“…In the literature, we can observe a further gap concerning the scarcity of empirical evidence about the potential benefits of the disclosure of NFI in the stakeholder perspective. In particular, the relationship between risk disclosures and firm value is underresearched, as the NFI literature mainly focuses on the motivations supporting the companies' decision to disclose [4,20,22].…”

Section: Introductionmentioning

confidence: 99%

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The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance?

2020

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With its Global Compact, the United Nations (UN) called companies to align strategies and operations with universal principles on human rights, labor, environment, and anti-corruption, while settling and pursuing the seventeen UN Sustainable Development Goals (SDGs). Achieving SDGs in business reporting is part of the lively debate in the literature about the ability of nonfinancial reporting in providing stakeholders with useful and value-relevant information about companies' behaviors. This paper intends to address this issue in the aftermath of the recent European Union EU policy (Directive 95/2014/EU) of mandating companies to disclose nonfinancial information (NFI) according to some of the SDGs matters. To this end, the Italian context was analyzed, and main findings provide some early evidence of the absence of association between NFI and financial/market performance. At the same time, the positive association between companies' Beta factor and size and NFI is supported. This implies that stakeholders still do not appreciate NFI reported according to the new rules and probably that more time is needed to assess the possible advantages of an improved regulation about NFI. However, results show that larger companies and/or companies with higher risk profiles (Beta) have already started to improve their NFI.

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Section: Discussionmentioning

confidence: 76%

Section: Introductionmentioning

confidence: 99%

The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance?

2020

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“…The second gap is the limited availability of empirical evidence on the effects of corporate risk disclosures and the potential benefits of the disclosure of information on risks that is yet to be explored. In particular, the relationship between risk disclosures and firm value has been neglected in existing research, as the risk literature mainly focuses on the incentives question that is related to the motives for which companies decide to disclose (Bravo, 2017; Elshandidy et al, 2018; Leopizzi et al, 2019).…”

Section: Introductionmentioning

confidence: 99%

Do investors value companies' mandatory nonfinancial risk disclosure? An empirical analysis of the Italian context after the EU Directive

2020

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In October 2014, the European Union adopted Directive 2014/95/EU (hereafter, EU Directive), mandating companies of a certain size to draft and publish corporate nonfinancial information (NFI) regarding society and the environment. In this study, we examine the mandatory disclosure of nonfinancial (NF) risks by listed Italian companies, as required by the EU Directive, focusing on both the state‐of‐the‐art of such disclosure and its usefulness for investors. For this purpose, the study adopts a two‐staged research approach; in the first stage, we employed a manual meaning‐oriented content analysis to investigate the NF declarations (NFDs) of the listed Italian companies that were obliged to disclose NFI, returning a quality NF risks disclosure index. In the second stage, we used the value relevance methodology to investigate whether the disclosed NF risk information affects the levels of equity prices, through a modified Ohlson model. Our research is one of the first to investigate the value relevance of mandatory disclosures of NF risks following the implementation of the EU Directive, in the Italian context. The research was carried out in 2017, the first year of the directive's application for listed Italian companies. The main findings support a positive association between NF risk information disclosure levels and companies' market value. Moreover, they provide evidence of a significant mediating effect of NF risk on the relationship between financial risks and market value.

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“…In addition, the study of (Bravo, 2017) found that CRD increases investor expectations, which in turn leads to a better evaluation of the company's performance. This may increase the efficiency of investments.…”

Section: Literature On Risk Information Disclosurementioning

confidence: 99%

أثر الإفصاح عن المخاطر على کفاءة الإستثمار: دلیل من مصر(باللغة الإنجلیزیة)

ابراهيم¹

2021

مجلة الاسکندریة للبحوث المحاسبیة

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This study aims to investigate the impact of risk disclosure on investment efficiency. The study tests hypotheses using a sample of 84 Egyptian companies registered on Stock Exchange for the period (2014)(2015)(2016)(2017)(2018). The researcher uses content analysis to calculate a risk disclosure index (RDI) from annual reports and study how it impacts the efficiency of investment in companies. The results show that there is a negative and significant relation between risk disclosure and investment, meaning that in light of the increase (decrease) in risk disclosure, companies have less (more) investment efficiency. This result is consistent with the divergence hypothesis, which indicates that when discloses details about risk information, investors can realize that the company is facing risks, so they demand more compensation to avoid uncertain risks, or at least withdrawn their equity ownership. This affects the inefficiency of investment. The study divided the sample into two groups: overinvestment and underinvestment, to test the impact of annual risk disclosure on investment. The results show a significant and negative relation between the overinvestment group and risk disclosure, while it is insignificant in the under investment group and risk disclosure whereas it indicates that risk disclosure can enhance the efficiency of investment mainly by limiting ineffective investment conduct. These results supported the literature on both risk disclosure and investment efficiency.

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Are risk disclosures an effective tool to increase firm value?

Cited by 37 publications

References 71 publications

The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance?

The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance?

Do investors value companies' mandatory nonfinancial risk disclosure? An empirical analysis of the Italian context after the EU Directive

أثر الإفصاح عن المخاطر على کفاءة الإستثمار: دلیل من مصر(باللغة الإنجلیزیة)

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