Communicating risk information:

Risk disclosure research

Professor Philip Linsley

The University of York

Session outline

• How we can research risk disclosure

• Difficulties in researching risk disclosure

REMEMBER

It is argued that:

Risk disclosure by companies is poor

BUT

How do we know this?

RISK DISCLOSURE STUDIES HAVE OFTEN EXAMINED IF RISK INFORMATION PROVIDED IS:

Future or past

Quantified or not quantified

Good news or bad news

HOW?

Methodology - content analysis

CODING GRID

How would you code this risk sentence from the Marks & Spencer plc financial report?

In recent times, as customers are spending less

when they shop and people are moving house less

often, customers have increasingly turned to

Marks & Spencer for homeware purchases.

How would you code this risk sentence from the Marks & Spencer plc financial report?

Our competitive prices reassure our customers

that they can economise at Marks & Spencer

without compromising on quality.

Linsley and Shrives (2006)

Examined sample of UK annual reports

• 6,168 risk sentences

• Most were not quantified

• More good news than bad news

• More future than past

Beretta and Bozzolan (2004)

Examined sample of Italian annual reports

QUANTITY OF RISK SENTENCES

DOES NOT TELL US ABOUT

QUALITY OF RISK DISCLOURES

Can we ever measure quality of risk disclosures?

• Different stakeholders = different needs

• Different readers = different risk attitudes

• Different industries = different risks and different approaches to risk

How would you code this risk sentence from the Marks & Spencer plc financial report?

Our business philosophy is that our products

should always be made with the very best

ingredients.

How would you define risk?

Linsley and Shrives (2006) definition of risk

Opportunity, hazard, harm, threat or exposure that

has impacted or may impact on the company

Other problems in risk disclosure studies

• Cross-country studies

• Financial versus non-financial firms

• Longitudinal studies over time

MOST IMPORTANTLY

What is often forgotten is the very nature of risk