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Determinants and impacts of risk disclosure quality: evidence from China

Author

Listed:
  • Tamer Elshandidy
  • Lorenzo Neri
  • Yingxi Guo

Abstract

Purpose - Few studies have focused on emerging markets owing to difficulties in identifying the real effect of disclosures on these economies. To fill this gap, the purpose of this paper is to first: investigate the main drivers for risk disclosure quality for Chinese financial firms, second: further study the impact of such disclosure on market liquidity. Design/methodology/approach - The sample comprises all financial firms listed in the Shanghai A-shares market for the period 2013–2015. By relying on manual content analysis of annual reports, the risk disclosure quality is measured through a multidimensional approach which encompasses three factors: quantity of disclosure, coverage of disclosure and the semantic properties of depth and outlook. The findings of this paper are based on ordinary least squares and fixed-effects estimations. Findings - The findings suggest that firm characteristics (especially size) influence risk disclosure practices of Chinese financial companies. Furthermore, the authors found that risk disclosure quality has an impact on market liquidity, and when the authors analysed each year the authors noticed that the results were driven by the year 2013; moreover, the authors noticed no or little significance from the period of the emerging financial crisis. Research limitations/implications - The sample of this paper is limited to financial firms in China. The usage of manual content analysis limits the authors’ ability to investigate risk reporting drivers and its impact on market liquidity on a large scale. Practical implications - The importance of this paper stems from documenting several reporting incentives concerning not only firms’ quantity, but also firms’ quality of risk reporting. Collectively, the findings support activism for reforms and the enhancement of regulations in China in order to make the market more efficient. Originality/value - This paper provides new evidence for financial companies in China on the principal drivers for risk disclosure quality and highlights how the quality of such disclosure impacts market liquidity. Furthermore, this paper confirms previous findings on the Chinese market (Ballet al., 2000;Zou and Adams, 2008) in which, given a decreasing but still strong state presence, there is higher stock volatility and weak corporate governance.

Suggested Citation

  • Tamer Elshandidy & Lorenzo Neri & Yingxi Guo, 2018. "Determinants and impacts of risk disclosure quality: evidence from China," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 19(4), pages 518-536, November.
  • Handle: RePEc:eme:jaarpp:jaar-07-2016-0066
    DOI: 10.1108/JAAR-07-2016-0066
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    Citations

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    Cited by:

    1. Chandni Khandelwal & Satish Kumar & Riya Sureka, 2022. "Mapping the intellectual structure of corporate risk reporting research: a bibliometric analysis," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(2), pages 129-143, June.
    2. Imen Derouiche & Riadh Manita & Anke Muessig, 2021. "Risk disclosure and firm operational efficiency," Annals of Operations Research, Springer, vol. 297(1), pages 115-145, February.
    3. Khandelwal, Chandni & Kumar, Satish & Madhavan, Vinodh & Pandey, Nitesh, 2020. "Do board characteristics impact corporate risk disclosures? The Indian experience," Journal of Business Research, Elsevier, vol. 121(C), pages 103-111.
    4. Michele Gendelsky de Oliveira & Graça Azevedo & Jonas Oliveira, 2021. "The Relationship between the Company’s Value and the Tone of the Risk-Related Narratives: The Case of Portugal," Economies, MDPI, vol. 9(2), pages 1-28, May.
    5. Ibrahim, Awad Elsayed Awad & Hussainey, Khaled & Nawaz, Tasawar & Ntim, Collins & Elamer, Ahmed, 2022. "A systematic literature review on risk disclosure research: State-of-the-art and future research agenda," International Review of Financial Analysis, Elsevier, vol. 82(C).
    6. AlKhawaldeh Afaf Mohammed & Saaydah Mansour Ibrahim, 2022. "Determinants of Corporate Risk Disclosure for Non- Financial Companies Listed on Amman Stock Exchange," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 152-177.
    7. Tariq H. Ismail & Yousra R. Obiedallah, 2022. "Firm performance and cost of equity capital: the moderating role of narrative risk disclosure quality in Egypt," Future Business Journal, Springer, vol. 8(1), pages 1-19, December.
    8. Javid Iqbal & Muhammad Khalid Sohail & Aymen Irshad & Rao Aamir Khan, 2024. "Risk management disclosures and banks financial performance: evidence from emerging markets," Risk Management, Palgrave Macmillan, vol. 26(1), pages 1-21, February.
    9. Ritika Gupta & Jacqueline Symss, 2023. "Does Corporate Governance Impact Risk Disclosure? An Empirical Analysis in the Indian Context," Indian Journal of Corporate Governance, , vol. 16(1), pages 9-27, June.
    10. Acheampong, Albert & Elshandidy, Tamer, 2021. "Does soft information determine credit risk? Text-based evidence from European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).

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