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Risk Disclosure and Firm Value: Evidence from the United Kingdom

Risk Disclosure and Firm Value: Evidence from the United Kingdom AbstractThe International Accounting Standard Board (IASB) aimed to increase the decision usefulness of firms’ risk disclosures with the 2007 introduction of the International Financial Reporting Standards (IFRS) 7. Specifically, listed firms were mandated to provide information to the market on both their (1) exposure and (2) risk management, which are associated with holding their financial instruments. This study investigates whether IFRS 7 financial instruments and their disclosures are associated with firm valuation. Using data on premiumlisted United Kingdom (UK) companies, for the period 2007–2019, I find evidence that firm value (proxied by Tobin's Q) is negatively associated with the quantity of IFRS 7 interest and credit risk disclosures. I further find that the market value decreases with the presence of quantitative information tabulated in the disclosures. The findings of this study have important implications for the IASB's standard-setting process. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Central European Economic Journal de Gruyter

Risk Disclosure and Firm Value: Evidence from the United Kingdom

Marta, Tache
Central European Economic Journal , Volume 8 (55): 10 – Jan 1, 2021
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Publisher
de Gruyter
Copyright
© 2021 Tache Marta, published by Sciendo
eISSN
2543-6821
DOI
10.2478/ceej-2021-0002
Publisher site
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Abstract

AbstractThe International Accounting Standard Board (IASB) aimed to increase the decision usefulness of firms’ risk disclosures with the 2007 introduction of the International Financial Reporting Standards (IFRS) 7. Specifically, listed firms were mandated to provide information to the market on both their (1) exposure and (2) risk management, which are associated with holding their financial instruments. This study investigates whether IFRS 7 financial instruments and their disclosures are associated with firm valuation. Using data on premiumlisted United Kingdom (UK) companies, for the period 2007–2019, I find evidence that firm value (proxied by Tobin's Q) is negatively associated with the quantity of IFRS 7 interest and credit risk disclosures. I further find that the market value decreases with the presence of quantitative information tabulated in the disclosures. The findings of this study have important implications for the IASB's standard-setting process.

Journal

Central European Economic Journal – de Gruyter

Published: Jan 1, 2021

Keywords: market valuation; risk disclosures; IFRS 7; downside risk; M42

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