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Clarity in Crisis: How UK Firms Communicated Risks during COVID-19

Author

Listed:
  • Ahmed Saber Moussa

    (Ministry of Finance Egypt, Nasr City, Cairo 11635, Egypt)

  • Mahmoud Elmarzouky

    (St Andrews Business School, University of St Andrews, The Gateway, North Haugh, St Andrews KY16 9RJ, UK)

Abstract

This study explores the influence of risk disclosure levels and types on the readability of annual reports of non-financial firms in the UK during the COVID-19 outbreak. It further investigates how the disclosure of COVID-19-related information moderates the relationship between risk disclosure and readability. The study uses a content analysis approach and CFIE software to measure the level of risk disclosure and readability in the annual reports of non-financial firms listed on the FTSE all-share from 2019 to 2021. The results show a positive and significant effect of risk disclosure level on readability, which is stronger for firms that disclosed COVID-19 information. Different types of risk disclosure have varying effects on readability, with COVID-19 risk, credit risk, and strategic risk positively affecting readability, while operational risk negatively affects it. The study contributes to the literature on information asymmetry and institutional theory by demonstrating how risk disclosure and readability are influenced by external factors like the COVID-19 outbreak and internal factors such as firm characteristics and types of risks. It introduces a new risk definition and category specific to the COVID-19 pandemic and develops new measurements for risk disclosure, including credit, liquidity, market, operational, business, strategic, and COVID-19 risks. The study provides valuable insights for managers, investors, regulators, and standard setters on the relationship between risk disclosure and readability in annual reports. It highlights the importance of disclosing COVID-19-related information to enhance the readability and understandability of financial communication. The paper contributes to the literature and practice on risk disclosure, readability, and financial communication during crises.

Suggested Citation

  • Ahmed Saber Moussa & Mahmoud Elmarzouky, 2024. "Clarity in Crisis: How UK Firms Communicated Risks during COVID-19," JRFM, MDPI, vol. 17(10), pages 1-21, October.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:10:p:449-:d:1492351
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    References listed on IDEAS

    as
    1. Kang, Helen & Gray, Sidney J., 2019. "Country-specific risks and geographic disclosure aggregation: Voluntary disclosure behaviour by British multinationals," The British Accounting Review, Elsevier, vol. 51(3), pages 259-276.
    2. Ewgenij Besuglov & Nils Crasselt, 2021. "The effect of readability and language choice in management accounting reports on risk-taking: an experimental study," Journal of Business Economics, Springer, vol. 91(1), pages 5-33, February.
    3. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    4. Philip M. Linsley & Michael J. Lawrence, 2007. "Risk reporting by the largest UK companies: readability and lack of obfuscation," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 20(4), pages 620-627, July.
    Full references (including those not matched with items on IDEAS)

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