Voluntary risk-related disclosures
Clinton, Sarah Beth
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This study investigates two related questions: 1) What are the properties of voluntary market risk-related disclosures outside of the annual report? and 2) What firm characteristics are associated with voluntary disclosure of information about market risk outside of the annual report? I examine disclosures in press releases relating to foreign exchange and interest rate fluctuations from 2001 to 2003. Despite calls for increased voluntary risk-related disclosures, I find that only 12% of firms issue voluntary foreign exchange and interest rate risk-related disclosures during the sample period. Most of these disclosures accelerate (rather than expand) information that subsequently appears in the mandated risk disclosures in the annual report. However, I also document that voluntary risk disclosures are less precise and more likely to contain upside risk-related information than mandated risk disclosures. I find that large firms with high exposure to foreign exchange and interest rate risk, significant institutional ownership, and low information asymmetry are more likely to issue voluntary risk disclosures. These firms are most likely to benefit from transparent risk disclosure. On the other hand, firms with an earnings decrease, firms with higher systematic risk, higher risk of litigation, those in technology industries and firms issuing equity are less likely to issue risk disclosures. These firms are likely concerned about drawing investor attention to external market risks beyond management control. As standard setters continue to reform market risk-related disclosure requirements, evidence on the incidence and characteristics of voluntary risk disclosures informs standard setters of what disclosures firms choose to make or accelerate within the period.