Determinants of enhanced risk disclosure of JSE Top 40 Companies: the board risk committee composition, frequency of meetings and the chief risk officer

Abstract

Risk disclosure practices have received increasing attention in the wake of the 2008 global financial crisis. This study investigated possible determinants relating to the composition of the board committee responsible for risk management, the frequency of board risk committee meetings and whether the company employs a chief risk officer, which could manifest in an enhanced level of risk-related disclosure. Based on the possible determinants identified in the literature, nine hypotheses were developed in order to investigate which of these determinants relate to an enhanced level of risk disclosure by the selected companies. The first required integrated reports of non-financial companies in the Top 40 index of the JSE Securities Exchange were investigated in this study. Regarding one area of investigation, namely the level of risk management disclosure, it was found that the disclosure of companies whose risk committee met more frequently and the disclosure of companies that employed a chief risk officer, were of a relatively higher standard. With regard to the other area of investigation, namely the level of risk identification and mitigation disclosure, no clearly significant determinant of enhanced disclosure was identified.

Corporate governance and risk disclosure: evidence from integrated reporting adopters

“…The IR journey, which matured rapidly after the release of the International Integrated Reporting Framework (IRF) by the International Integrated Reporting Council (IIRC) ( 2013) and (Maroun, 2017(Maroun, , 2018, has recently sparked the interest of academics. Accordingly, they have broadened the scope of actions in the risk disclosure literature, largely focusing on annual reports (Moolman et al, 2016;Viljoen et al, 2016;Guthrie et al, 2020;Elshandidy et al, 2022).…”

“…Risk disclosure has gained momentum in stock markets’ current uncertainty and instability arising from major corporate collapses and global financial and health crises (Lajili and Zéghal, 2005; Abraham and Cox, 2007; De Luca and Phat Phan, 2019). For investors, risk disclosure is crucial for assessing companies’ risk profiles, determining the effects of financial and non-financial risks on firms’ future financial positions and forecasting companies’ security prices (Abraham and Cox, 2007; Viljoen et al , 2016; Saggar and Singh, 2017; Salem et al , 2019). Companies may benefit from improved risk disclosure to mitigate information asymmetry between insiders and outsiders from which agency costs arise, manage changes, reduce investors’ risk perception, and, in turn, lower the cost of capital (Abraham and Cox, 2007; Saggar and Singh, 2017; Salem et al , 2019).…”

“…According to agency theory, the board of directors is responsible for reducing managers’ opportunistic behaviours and aligning the interests of shareholders, external stakeholders and internal managers by means of a satisfactory level of corporate disclosure that should include significant information on risks (Scherrer, 2003; Ntim et al , 2013; Elshandidy and Neri, 2015; Saggar and Singh, 2017; Nerantzidis and Tsamis, 2017; Merendino and Melville, 2019). The board of directors is the leading actor in charge of monitoring and promoting the effective development of risk identification, management and reporting systems (Abraham and Cox, 2007; Ntim et al , 2013; Viljoen et al , 2016; Salem et al , 2019). Accordingly, corporate governance arrangements in terms of board composition are crucial in explaining the effectiveness of corporate accountability and transparency practices on risks (Ntim et al , 2013; Viljoen et al , 2016).…”

“…The board of directors is the leading actor in charge of monitoring and promoting the effective development of risk identification, management and reporting systems (Abraham and Cox, 2007; Ntim et al , 2013; Viljoen et al , 2016; Salem et al , 2019). Accordingly, corporate governance arrangements in terms of board composition are crucial in explaining the effectiveness of corporate accountability and transparency practices on risks (Ntim et al , 2013; Viljoen et al , 2016).…”

Sustainability reporting in the aviation industry: worldwide evidence

“…This demonstrates that the R 2 values in our study are at moderate level and are not weaker than those in prior studies. However, other than the financial variables used in the study, non-financial factors might influence sustainability reporting practices (Keerasuntonpong et al , 2015; Viljoen et al , 2016), such as internal (i.e. board characteristics), media exposure and regulatory factors.…”