Choices and Best Practice in Corporate Risk Management Disclosure

Abstract

For over a decade, the SEC has required corporations to disclose in their 10-K filings the nature and extent of their risk exposures using one or more of the following three methods: (1) sensitivity analysis; (2) the so-called "tabular" format; and (3) value-at-risk (VaR). After discussing the significant differences in the type and level of information revealed by each method, this article presents the findings of a study that examines how corporate choices of disclosure method vary with firm-specific and industry characteristics. 2007 Morgan Stanley.

Corporate risk exposures, disclosure, and derivatives use: A longitudinal study

“…Finally, Emm, Gay, and Lin () study a sample of S&P 1500 firms taken from the period 2002–2004 period. They find firms choosing the VaR format were larger, made greater use of derivatives, and were in more competitive industries.…”

“…We next investigate the joint influence of a set of firm‐specific and industry‐level variables on a company's choice of disclosure format. We follow closely the methodology discussed in Emm et al () and conduct a multinomial logit regression procedure wherein for each explanatory variable we estimate the change in propensity for a firm to select one disclosure format versus a paired‐alternative format. Given the three pair‐wise combinations of disclosure formats (i.e., tabular vs. sensitivity, VaR vs. sensitivity, and VaR vs. tabular), we jointly estimate three regressions.…”

Long-Term Risk Management for Utility Companies: The Next Challenges

“…interest rates, foreign exchange variations, VaR limit values, and confidence level parameters. For more details on the information disclosed by US listed companies on their risk exposure and risk measurement methodology one can refer to Emm and Lin's work [16]. Here, Table 4 gives a broad overview of these values.…”

Risk Management with Supply Contracts

“…Appendix B provides additional detail on this data collection process.4 To ensure that our automated data procedure used to populate Commodity Hedger accurately captures commodity derivatives usage in firms, we compare our data to the hand collected data used inEmm, Gay, and Lin (2007). For the 3,000 firm-years which overlap, over 99% of observations are coded identically.…”

“…For the 3,000 firm-years which overlap, over 99% of observations are coded identically. We read the 10-K filing for observations which are inconsistent withEmm, Gay, and Lin (2007). A manual reading of the 10-K filings indicates that the data used in our paper are correctly coded.…”