To Disclose or Not to Disclose: The Risk of Risk Reporting

Corporate risk disclosure (CRD) has gained considerable attention particularly after the US accounting scandals and corporate failures of the early 2000s and the global financial crisis of 2007-8.These crises served as a wakeup call for companies, investors, policy makers, capital market authorities and other stakeholder groups to pay more attention to risk management and risk reporting. Consequently, there has been a growing demand for companies to provide more, and better, risk informationin their annual reports. Professional bodies have proposed guidelines encouraging companies to provide more information on their risk exposure. In addition, there have been regulatory responses with different countries issuing regulations that oblige companies to report risk information and, hence, assist investors and other stakeholders in their decision-making. Breen, Clearfield and Klimczak (2011) indicate that risk management techniques, policies, actions and practices including risk assessment have developed after the financial crisis, which in turn should be reflected in CRD practices and accompanied by improvements in the quality and informativeness of risk information released by companies. The findings of the existing CRD literature suggest companies have increased their risk disclosures and report more risk-related information, although they are not necessarily reporting more informative risk information. This raises concerns about the quality and usefulness of risk information.