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Determinants of narrative risk disclosures in UK interim reports

Hany Elzahar (Department of Accounting & Finance, Stirling University, Stirling, UK)
Khaled Hussainey (Department of Accounting & Finance, Stirling University, Stirling, UK)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 24 February 2012

5576

Abstract

Purpose

The purpose of this paper is to contribute to the existing disclosure literature by examining the determinants of narrative risk information in the interim reports for a sample of UK non‐financial companies.

Design/methodology/approach

This study uses the manual content analysis to measure the level of risk information in interim report narrative sections prepared by 72 UK companies. It also uses the ordinary least squares regression analysis to examine the impact of firm‐specific characteristics and corporate governance mechanisms on narrative risk disclosures.

Findings

The empirical analysis shows that large firms are more likely to disclose more risk information in the narrative sections of interim reports. In addition, the analysis shows that industry activity type is positively associated with levels of narrative risk disclosure in interim reports. Finally, the analysis shows statistically insignificant impact of other firm‐specific characteristics (liquidity, gearing, profitability, and cross‐listing) and corporate governance mechanisms on narrative risk disclosure.

Practical implications

The study's findings have practical implications. It informs investors about the characteristics of UK companies that disclose risk information in their interim reports. For example, the findings show that narrative risk disclosures are affected by firm size and industry type rather than firms' risk levels (e.g. financing risk measured by the gearing ratio or liquidity risk measured by lower liquidity ratios). Practical implications for managers from these findings are that, in order to keep investors satisfied, companies with high levels of financing and liquidity risks should look at investors' demands for risk disclosure. This will help investors when making their investment decisions.

Originality/value

The determinants of narrative risk disclosure in interim reports have not been explored so clearly in prior research and, therefore, this paper is the first of its kind to examine this research issue for a sample of UK companies.

Keywords

Citation

Elzahar, H. and Hussainey, K. (2012), "Determinants of narrative risk disclosures in UK interim reports", Journal of Risk Finance, Vol. 13 No. 2, pp. 133-147. https://doi.org/10.1108/15265941211203189

Publisher

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Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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