Organisational Characteristics, Corporate Governance and Corporate Risk Disclosure: An Overview

Cover Page

Cite item

Full Text

Abstract

Certain attributes of corporate governance behaviour have been identified in academic research as major factors correlating with corporate risk disclosure amongst listed companies. This is in spite of the fact, however, that much of the empirical research in the area reveals mixed results.

This study analyses corporate risk disclosure practice involving listed companies and investigates whether such diverse results are attributable to regulation, jurisdiction, operating industry, business environment, or the methodologies employed. We use risk disclosure, corporate governance and organisational characteristics keywords to search the relevant studies on which 46 empirical research papers were sampled, and employ a meta-analysis procedure to evaluate the findings of the previous empirical research.

Our analyses reveal that firm size is the major organisational-specific characteristic affected by moderators, and board size and institutional investors are the major corporate governance variables that affect moderators. On the analysis of the nature of disclosure, financial risk information is higher for companies operating in the banking sector, while operational risk disclosure is higher for non-financial companies. Additionally, the study finds that the data generating procedure, time interval, diversity of sample and size, and the statistical technique employed are among the major factors that influence discrepancies among the prior studies.

Such variables complicate stakeholders’ effort to comprehend the main factors that influence companies to unveil their risks profile. We propose that the current data collection process is labour intensive and time consuming, and promote the selection of smaller sample sizes compared to most of the existing research. It may be the case that constraints can be overcome through research that employs an automated procedure for analysis of textual data.

About the authors

M. U Adamu

NRS-HSE, Moscow

Author for correspondence.
Email: musubadam@gmail.com

References

  1. Ntim C.G., Lindop S., Thomas D.A. Corporate governance and risk reporting in South Africa: A study of corporate risk disclosures in the pre- and post-2007/2008 global financial crisis period. International Review of Financial Analysis. 2013;30:363-383. DOI: https://doi.org/10.1016/j.irfa.2013.07.001 DOI: https://doi.org/10.1016/j.irfa.2013.07.001
  2. Dobler M., Luckner M. Risk disclosures, governance and ownership: Evidence from German non-listed firms. Corporate Ownership & Control. 2018;15(4):46-57. DOI: https://doi.org/10.22495/cocv15i4art4 DOI: https://doi.org/10.22495/cocv15i4art4
  3. Lajili K., Dobler M., Zeghal D. An empirical investigation of business and operational risk disclosures. International Journal of Management and Business. 2012;3(2):53-71. URL: https://www.researchgate.net/publication/267327503 (accessed on 30.11.2020).
  4. Mgammal M.H. The effect of ownership structure on voluntary disclosure: Evidence from Saudi Arabia. Journal of Advanced Management Science. 2017;5(2):138-151. DOI: https://doi.org/10.18178/joams.5.2.138-151 DOI: https://doi.org/10.18178/joams.5.2.138-151
  5. Meijer M.G.H. Risk disclosures in annual reports of Dutch listed companies during the years 2005-2008. Master’s thesis. Delden: University of Twente; 2011. 106 p. URL: https://essay.utwente.nl/61150/1/MSc_M_Meijer.pdf (accessed on 20.11.2020).
  6. Dohn K., Zoleński W., Gumiński A. Early warning concept in identifying risks in business activity. In: Raczkowski K., ed. Risk management in public administration. Cham: Palgrave Macmillan; 2017:149-187. DOI: https://doi.org/10.1007/978-3-319-30877-7_6 DOI: https://doi.org/10.1007/978-3-319-30877-7_6
  7. Linsley P.M., Shrives P.J. Risk reporting: A study of risk disclosures in the annual reports of UK companies. The British Accounting Review. 2006;38(4):387-404. DOI: https://doi.org/10.1016/j.bar.2006.05.002 DOI: https://doi.org/10.1016/j.bar.2006.05.002
  8. Deumes R., Knechel W.R. Economic incentive for voluntary reporting on internal risk management and control systems. Auditing: A Journal of Practice and Theory. 2008;27(1):35-66. DOI: https://doi.org/10.2308/aud.2008.27.1.35 DOI: https://doi.org/10.2308/aud.2008.27.1.35
  9. Semper D.C., Beltrán J.M.T. Risk disclosure and cost of equity: The Spanish case. Contaduría y Administración. 2014;59(4):105-135. DOI: https://doi.org/10.1016/S0186-1042(14)70157-3 DOI: https://doi.org/10.1016/S0186-1042(14)70157-3
  10. Ivashkovskaya I., Zinkevich N. The relationship between corporate governance and company performance in concentrated ownership systems: The case of Germany. Korporativnye finansy = Journal of Corporate Finance Research. 2009;3(4):34-56. DOI: https://doi.org/10.17323/j.jcfr.2073-0438.3.4.2009.34-56 DOI: https://doi.org/10.17323/j.jcfr.2073-0438.3.4.2009.34-56
  11. Adamu M.U. Risk disclosure: A study of risk disclosure in the annual reports of listed companies in Nigeria. Research Journal of Finance and Accounting. 2013;4(16):140-148. URL: https://www.iiste.org/Journals/index.php/RJFA/article/view/8294 (accessed on 30.11.2020).
  12. Beretta S., Bozzolan S. A framework for the analysis of firm risk communication. The International Journal of Accounting. 2004;39(3):265-288. DOI: https://doi.org/10.1016/j.intacc.2004.06.006 DOI: https://doi.org/10.1016/j.intacc.2004.06.006
  13. Al-Maghzom A., Hussainey K., Aly D. Corporate governance and risk disclosure: Evidence from Saudi Arabia. Corporate Ownership and Control. 2016;13(2):145-166. DOI: https://doi.org/10.22495/cocv13i2p14 DOI: https://doi.org/10.22495/cocv13i2p14
  14. Deumes R. Corporate risk reporting: A content analysis of narrative risk disclosures in prospectuses. InternationalJournal of Business Communication. 2008;45(2):120-157. DOI: https://doi.org/10.1177/0021943607313992 DOI: https://doi.org/10.1177/0021943607313992
  15. Linsley P.M., Lawrence M.J. Risk reporting by the largest UK companies: Readability and lack of obfuscation. Accounting, Auditing & Accountability Journal. 2007;20(4):620-627. DOI: https://doi.org/10.1108/09513570710762601 DOI: https://doi.org/10.1108/09513570710762601
  16. Barakat A., Hussainey K. Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks. International Review of Financial Analysis. 2013;30:254-273. DOI: https://doi.org/10.1016/j.irfa.2013.07.002 DOI: https://doi.org/10.1016/j.irfa.2013.07.002
  17. Al-Hadi A., Hasan M.M., Habib A. Risk committee, firm life cycle, and market risk disclosures. Corporate Governance:An International Review. 2016;24(2):145-170. DOI: https://doi.org/10.1111/corg.12115 DOI: https://doi.org/10.1111/corg.12115
  18. Ellili N., Nobanee H. Corporate risk disclosure of islamic and conventional banks. Banks and Bank Systems. 2017;12(3-1):247-256. DOI: https://doi.org/10.21511/bbs.12(3-1).2017.09 DOI: https://doi.org/10.21511/bbs.12(3-1).2017.09
  19. Abd Elghafgar E.S., Abotalib A.M., Khalil M.A.A. Determining factors that affect risk disclosure level in Egyptian Banks. Banks and Bank Systems. 2019;14(1):159-171. DOI: https://doi.org/10.21511/bbs.14(1).2019.14 DOI: https://doi.org/10.21511/bbs.14(1).2019.14
  20. Oliveira J., Lima Rodrigues L., Craig R. Voluntary risk reporting to enhance institutional and organizational legitimacy: Evidence from Portuguese banks. Journal of Financial Regulation and Compliance. 2011;19(3):271-289. DOI: https://doi.org/10.1108/13581981111147892 DOI: https://doi.org/10.1108/13581981111147892
  21. Elshandidy T., Neri L., Guo Y. Determinants and impacts of risk disclosure quality: Evidence from China. Journal of Applied Accounting Research. 2018;19(4):518-536. DOI: https://doi.org/10.1108/JAAR-07-2016-0066 DOI: https://doi.org/10.1108/JAAR-07-2016-0066
  22. Linsley P.M., Shrives P.J., Crumpton I. Risk disclosure: An exploratory study of UK and Canadian banks. Journal of Banking Regulation. 2006;7(3-4):268-282. DOI: https://doi.org/10.1057/palgrave.jbr.2350032. DOI: https://doi.org/10.1057/palgrave.jbr.2350032
  23. Van Oorschot L. Risk reporting: An analysis of the German banking industry. Master theses. Rotterdam: Erasmus University Rotterdam; 2010. 103 p. URL: http://hdl.handle.net/2105/5413 (accessed on 20.11.2020).
  24. Alkurdi A., Hussainey K., Tahat Y., Aladwan M. The impact of corporate governance on risk disclosure: Jordanian evidence. Academy of Accounting and Financial Studies Journal. 2019;23(1):1-16. URL: https://www.abacademies.org/articles/the-impact-of-corporate-governance-on-risk-disclosure-jordanian-evidence-7886.html
  25. Woods M., Down K., Humphrey C. The value of risk reporting: A critical analysis of value-at-risk disclosures in the banking sector. Intertional Journal of Financial Services Management. 2008;3(1):45-64. DOI: https://doi.org/10.1504/IJFSM.2008.016698 DOI: https://doi.org/10.1504/IJFSM.2008.016698
  26. Anagnostopoulos Y., Gkemitzis C. Size, profitability and risk level effects of accounting disclosures: A study on the Greek banking industry. Public and Municipal Finance. 2013;2(2):15-34. URL: https://eprints.kingston.ac.uk/id/eprint/39364 (accessed on 20.11.2020).
  27. Vandemaele S., Vergauwen P., Michiels A. Management risk reporting practices and their determinants: A study of Belgian listed firms. 2009. URL: https://www.researchgate.net/publication/277755521 (accessed on 20.11.2020).
  28. Mohobbot A.M.Corporate risk reporting practices in annual reports of Japanese companies.Journal of the Japanese Association for International Accounting Studies. 2005. URL: www.researchgate.net/publication/284499708 (accessed on 20.11.2020).
  29. Madrigal M.H., Guzmán B.A., Guzmán C.A. Determinants of corporate risk disclosure in large Spanish companies: A snapshot. Contaduría y Administración. 2015;60(4):757-775. DOI: https://doi.org/10.1016/j.cya.2015.05.014 DOI: https://doi.org/10.1016/j.cya.2015.05.014
  30. Abdallah A.A.-N., Hassan M.K., McClelland P.L. Islamic financial institutions, corporate governance and corporate risk disclosure in Gulf Cooperation Council countries. Journal of Multinational Financial Management. 2015;31:63-82. DOI: https://doi.org/10.1016/j.mulfin.2015.02.003 DOI: https://doi.org/10.1016/j.mulfin.2015.02.003
  31. Louhichi W., Zreik O. Corporate risk reporting: A study of the impact of risk on firm reputation. Economics Bulletin. 2015;35(4):2395-2408. URL: http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I4-P240.pdf (accessed on 20.11.2020).
  32. Hill P., Short H. Risk disclosures on the second tier markets of the London Stock Exchange. Accounting and Finance. 2009;49(4):753-780. DOI: https://doi.org/10.1111/j.1467-629X.2009.00308.x DOI: https://doi.org/10.1111/j.1467-629X.2009.00308.x
  33. Rajab B., Handley-Schachler M. Corporate risk disclosure by UK firms: Trends and determinants. World Review of Entrepreneurship Management and Sustainable Development.2009;5(3):224-243. DOI: https://doi.org/10.1504/WREMSD.2009.026801 DOI: https://doi.org/10.1504/WREMSD.2009.026801
  34. Lajili K. Corporate risk disclosure and corporate governance. Journal of Risk and Financial Management. 2009;2(1):94-117. DOI: https://doi.org/10.3390/jrfm2010094 DOI: https://doi.org/10.3390/jrfm2010094
  35. Domínguez L.R., Gámez L.C.N. Corporate reporting on risks: Evidence from Spanish companies. Revista de Contabilidad = Spanish Accounting Review.2014;17(2):116-129. DOI: https://doi.org/10.1016/j.rcsar.2013.10.002 DOI: https://doi.org/10.1016/j.rcsar.2013.10.002
  36. Elshandidy T., Fraser I., Hussainey K. What drives mandatory and voluntary risk reporting variations across Germany, UK and US ? The British Accounting Review. 2015;47(4):376-394. DOI: https://doi.org/10.1016/j.bar.2014.06.001 DOI: https://doi.org/10.1016/j.bar.2014.06.001
  37. Elshandidy T., Neri L. Corporate governance, risk disclosure practices, and market liquidity: Comparative evidence from the UK and Italy. Corporate Governance:An International Review. 2015;23(4):331-356. DOI: https://doi.org/10.1111/corg.12095 DOI: https://doi.org/10.1111/corg.12095
  38. Netti A. Firm determinants of risk disclosure: Evidence from Italian listed companies. Corporate Ownership & Control. 2018;16(1-1):168-177. DOI: https://doi.org/10.22495/cocv16i1c1art5 DOI: https://doi.org/10.22495/cocv16i1c1art5
  39. Saggar R., Singh B. Corporate governance and risk reporting: Indian evidence. Managerial Auditing Journal. 2017;32(4-5):378-405. DOI: https://doi.org/10.1108/MAJ-03-2016-1341 DOI: https://doi.org/10.1108/MAJ-03-2016-1341
  40. Geraldina I. The quality of risk disclosure: Evidence from infrastructure industry in Indonesia. Jurnal Dinamika Akuntansi dan Bisnis = Journal of Accounting and Business Dynamics. 2017;4(2):211-230. DOI: https://doi.org/10.24815/jdab.v4i2.8053 DOI: https://doi.org/10.24815/jdab.v4i2.8053
  41. Habtoor O.S., Ahmad N. The influence of royal board of directors and other board characteristics on corporate risk disclosure practices. Corporate Ownership & Control. 2017;14(2):326-337. DOI: https://doi.org/10.22495/cocv14i2c2p6 DOI: https://doi.org/10.22495/cocv14i2c2p6
  42. Hassan N.S.M. Investigating the impact of firm characteristics on the risk disclosure quality. International Journal of Business and Social Science. 2014;5(9/1):109-119. URL: http://ijbssnet.com/journals/Vol_5_No_11_October_2014/12.pdf
  43. Al-Shammari B. Kuwait corporate characteristics and level of risk disclosure: A content analysis approach. Journal of Contemporary Issues in Business Research. 2014;3(3):128-153. URL: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.679.8822&rep=rep1&type=pdf (accessed on 20.11.2020).
  44. Moumen N., Othman H.B., Hussainey K. Board structure and the informativeness of risk disclosure: Evidence from MENA emerging markets. Advances in Accounting. 2016;35:82-97. DOI: https://doi.org/10.1016/j.adiac.2016.09.001 DOI: https://doi.org/10.1016/j.adiac.2016.09.001
  45. Viljoen C., Bruwer B.W., Enslin Z. Determinants of enhanced risk disclosure of JSE Top 40 Companies: The board risk committee composition, frequency of meetings and the chief risk officer. Southern African Business Review. 2019;20: 208-235. DOI: https://doi.org/10.25159/1998-8125/6050 DOI: https://doi.org/10.25159/1998-8125/6050
  46. Achmad T., Faisal F., Oktarina M. Factors influencing voluntary corporate risk disclosure practices. Corporate Ownership & Control. 2017;14(3-2):286-292. DOI: https://doi.org/10.22495/cocv14i3c2art2 DOI: https://doi.org/10.22495/cocv14i3c2art2
  47. Ishtiaq M., Latif K., Ashraf A., Akram M.A. Determinants of risk disclosure in Pakistan: Evidence from textile firms listed at Pakistan Stock Exchange. Journal of Managerial Sciences. 2017;3:534-552. URL: https://qurtuba.edu.pk/jms/EIEF.htm (accessed on 20.11.2020).
  48. Seta A.T., Setyaningrum D. Corporate governance and risk disclosure: Indonesian evidence. In: Proc. 6thInt. accounting conference (IAC 2017). Amsterdam: Atlantis Press; 2017:37-41. (Advances in Economics, Business and Management Research. Vol. 55). DOI: https://doi.org/10.2991/iac-17.2018.7 DOI: https://doi.org/10.2991/iac-17.2018.7
  49. Habtoor O.S., Ahmad N., Baabbad M.A., Masood A., Mohamad N.R., Hassan M. et al. Corporate risk disclosure practice in Saudi Arabia: Secrecy versus transparency. International Journal of Advanced and Applied Sciences. 2018;5(12):42-58. DOI: https://doi.org/10.21833/ijaas.2018.12.007 DOI: https://doi.org/10.21833/ijaas.2018.12.007
  50. Musa N.E., Ali M.M., Haron N.H. The influence of corporate governance on voluntary risk disclosure: Malaysian evidence. Journal of Engineering and Applied Sciences. 2018;13(8):2086-2091. DOI: https://doi.org/10.3923/jeasci.2018.2086.2091
  51. Mazaya N., Fuad F. Business strategy, corporate governance, firm characteristics, and risk disclosure in the Indonesian Stock Exchange. Jurnal Keuangan dan Perbankan = Finance and Banking Journal. 2018;22(3):381-394. DOI: https://doi.org/10.26905/jkdp.v22i3.2167 DOI: https://doi.org/10.26905/jkdp.v22i3.2167
  52. Alshirah M.H., Rahman A.A., Mustapa I.R. The role of foreign directors in corporate risk disclosure: Empirical evidence from Jordan. International Journal of Financial Research. 2019;10(4):119-127. DOI: https://doi.org/10.5430/ijfr.v10n4p119 DOI: https://doi.org/10.5430/ijfr.v10n4p119
  53. Kamaruzaman S.A., Ali M.M., Ghani E.K., Gunardi A. Ownership structure, corporate risk disclosure and firm value: A Malaysian perspective.International Journal of Managerial and Financial Accounting.2019;11(2):113-131. DOI:https://doi.org/10.1504/IJMFA.2019.099766 DOI: https://doi.org/10.1504/IJMFA.2019.099766
  54. Habtoor O.S., Hassan W.K., Aljaaidi K.S. The impact of corporate ownership structure on corporate risk disclosure: Evidence from the Kingdom Of Saudi Arabia. Business and Economic Horizons. 2019;15(2):325-356. DOI:https://doi.org/10.15208/beh.2019.20
  55. Wieczorek-Kosmala M., Błach J., Gorczyńska M. Voluntary risk reporting in annual reports – case study of the practices of Polish public companies. Financial Internet Quarterly “e-Finanse”. 2014;10(4):46-59 DOI: https://doi.org/10.14636/1734-039X_10_4_005
  56. Serrasqueiro R.M., Mineiro T.S. Corporate risk reporting: Analysis of risk disclosures in the interim reports of public Portuguese non-financial companies. Contaduría y Administración. 2018;63(2):991-1013. DOI: https://doi.org/10.22201/fca.24488410e.2018.1615 DOI: https://doi.org/10.22201/fca.24488410e.2018.1615
  57. Salem I.H., Ayadi S.D., Hussainey K. Corporate governance and risk disclosure quality: Tunisian evidence. Journal of Accounting in Emerging Economics. 2019;9(4):567-602. DOI: https://doi.org/10.1108/JAEE-01-2019-0005 DOI: https://doi.org/10.1108/JAEE-01-2019-0005

Supplementary files

Supplementary Files
Action
1. JATS XML

Copyright (c) 2021 Adamu M.U.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.