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Risk management disclosure

Author

Listed:
  • Maizatulakma Abdullah
  • Zaleha Abdul Shukor
  • Zakiah Muhammadun Mohamed
  • Azlina Ahmad

Abstract

Purpose - – The purpose of this paper is to examine the effect of voluntary risk management disclosure (VRMD) on firm value (FV). Design/methodology/approach - – This study uses content analysis approach to collect the VRMD data. FV is represented by three variables: market capitalization, Tobin’sQand market to book value of equity ratio. Based on a sample of 395 firms listed on the main market of Bursa Malaysia in 2011, this study uses multivariate statistical tests to examine the association between VRMD and FV. Findings - – Based on the regression analysis, this study found that the VRMD has a positive and significant relationship with FV. Even though the authors hypothesize that damaging voluntary risk management disclosure (DVRMD) will have a negative and significant relationship with FV, the regression analysis shows that the DVRMD is not significantly related to FV. As expected, the relationship between beneficial voluntary risk management disclosure (BVRMD) and FV is positive and significant. The findings provide evidence that should be of interest especially to firms in terms of deciding upon whether to provide or avoid disclosing voluntary risk management information to their stakeholders. Research limitations/implications - – Notwithstanding the critical empirical findings, this study is limited to only focusing on a one year data. The authors acknowledge the fact that findings from a one year data might not be easily generalized to other time periods. The authors believe a stronger argument could be obtained from evidence based on a longitudinal study or data that incorporate multiple economic conditions. The study highlights the fact that risks management information is important to investors in Malaysia when they make their investments decisions. Practical implications - – To date, regulatory bodies emphasize more on financial risk management disclosure through the enforcement of MFRS 7; while non-financial risk information is less emphasized in current guidelines such as Malaysian Code on Corporate Governance (MCCG) (2012) and Recommended Practice Guide 5 (Revised), which only requires firms to disclose information about non-financial risk management without specific details. As this study has provided evidence on the significance of non-financial risk management disclosures in the capital market, this study could be useful for the regulatory bodies to develop more detailed guidelines on non-financial risk management disclosure in the future. Originality/value - – Most of prior literatures are found to focus on the study of factors that influence the VRMD (such as Linsley and Shrives, 2006; Abraham and Cox, 2007; Hassanet al., 2009; Ismail and Abdul Rahman, 2011). Studies about the effects of voluntary risk management information disclosure is however very scant. Miihkinen (2013) studied the effects of risk management disclosure on information asymmetry. This paper adds to Miihkinen (2013) by investigating the relationship between VRMD and FV. This paper is expected to be the first to investigate on the empirical usefulness of VRMD in a developing country.

Suggested Citation

  • Maizatulakma Abdullah & Zaleha Abdul Shukor & Zakiah Muhammadun Mohamed & Azlina Ahmad, 2015. "Risk management disclosure," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 16(3), pages 400-432, November.
  • Handle: RePEc:eme:jaarpp:v:16:y:2015:i:3:p:400-432
    DOI: 10.1108/JAAR-10-2014-0106
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    Citations

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    Cited by:

    1. Faizah Darus & Shafawati Farhana Mohd Safihie & Haslinda Yusoff, 2019. "Propagating Transparency and Accountability Through Integrated Reporting: An Empirical Insight From a Developing Country," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 92-109, August.
    2. Aditya Aji Prabhawa & Iman Harymawan, 2022. "Readability of Financial Footnotes, Audit Fees, and Risk Management Committee," Risks, MDPI, vol. 10(9), pages 1-21, August.
    3. Gratiela Georgiana Noja & Eleftherios Thalassinos & Mirela Cristea & Irina Maria Grecu, 2021. "The Interplay between Board Characteristics, Financial Performance, and Risk Management Disclosure in the Financial Services Sector: New Empirical Evidence from Europe," JRFM, MDPI, vol. 14(2), pages 1-20, February.
    4. Johnson Kolawole OLOWOOKERE & Bolarinwa R. FERUKE, 2021. "Value Relevance Of Risk Management Disclosure Among Listed Deposit Money Banks In Nigeria," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 11(4), pages 64-79, December.
    5. Mohammed Mahmud Kakanda & Basariah Salim & Sitraselvi a/p Chandren, 2017. "Corporate Governance, Risk Management Disclosure, and Firm Performance: A Theoretical and Empirical Review Perspective," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(9), pages 836-845, September.
    6. 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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