Voluntary Risk Disclosure in Corporate Annual Reports: An Empirical Review

Abstract

Corporate governance scandals and the global financial crisis have led to calls for better risk disclosure. However, such disclosure may be stifled by the proprietary cost hypothesis that firms limit voluntary disclosure to avoid risk of adverse actions. Against this background, several studies have examined the determinants of risk disclosure in corporate annual reports. The purpose of this paper is to review empirical evidences on risk disclosure determinants in the literature. The researcher uses qualitative-archival research methodology, involving secondary information obtained from journal articles, MSc dissertation and finance texts. It is discovered that most of the findings suffered from discrepancies and inconsistency even though the studies under review are characterized by methodological similarities in the employment of regression analysis and sampled companies namely: listed non-financial firms. The study concludes that no globally accepted risk disclosure determinants exist at present and offer that policy makers put in place a framework for risk disclosure pattern of companies to ensure credible, comparable, consistent and easy to follow but tough to escape material risk reporting around the globe. Besides, extending the frontiers of knowledge on risk disclosure to developing economy, the paper gives the ongoing debate on risk disclosure determinants a global approach towards contributing to search on convergent risk reporting dynamics.

Keywords: Annual reports, Determinants, Risk, Voluntary disclosure, Proprietary cost, Non-financial firms.