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Risk disclosures in annual reports of Dutch listed companies during the years 2005-2008

Meijer, Mark (2011) Risk disclosures in annual reports of Dutch listed companies during the years 2005-2008.

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Abstract:Creating transparency about risks in the annual reports is vital for the well-functioning of an organization. An organization has to deal with the stakeholders’ need for information. Stakeholders need information about all aspects of the organization, including risks to make sound judgments. Another reason why the topic of risk reporting received more attention is the financial crisis, also called credit crunch. The world got confronted with the financial crisis in 2007 and even more in 2008. With the collapse of financial markets and the (forced) government intervention, the financial services industry changed significantly. In this climate it is necessary for companies to develop strategies in order to anticipate on risks. This thesis provides a longitudinal study of the type and nature of corporate risk information disclosed in the company’s annual reports during the financial years 2005-2008. The focus of the hypotheses is to test whether (i) the quantity and quality of risk disclosures in the annual reports of Dutch listed companies are significantly higher in the period 2007-2008 compared with the period 2005-2006, (ii) the number of risk categories identified in the annual reports of the period 2007-2008 are significantly higher compared with the period 2005-2006, (iii) if there exists any relationship between the quantity and quality of risk disclosures being made within company’s annual report and company size. A content analysis has been performed in this thesis to measure the quantity of risk disclosures. Content analysis will also be used to measure the content of risk disclosures. To measure the content different risk categories are identified – market risk (currency risk, interest rate risk and other price risk), credit risk, liquidity risk, strategic risk, operational risk, legal and regulatory risk and financial reporting risk. Finally a disclosure index is performed in this thesis to measure the quality of risk disclosures. The results support the hypothesis that there exists a positive relationship between quality and time; the quality of annual reports of Dutch listed companies has increased significantly during the periods 2005-2006 and 2007-2008. The results of this study support the hypothesis that there is a significant positive relationship between quantity and time. This relationship exists for both measures of quantity. When quantity is measured by means of the number of words and when it is measured by means of the percentage of the total annual report. A significant positive relationship was also found between the number of risk categories disclosed and time. The annual reports in the period 2007-2008 have significantly more risk categories disclosed then the annual reports in the period 2005-2006. The results support the hypothesis that there exists a positive correlation between the quantity of risk disclosures and company size for the period 2005-2006 and 2007-2008. This positive relationship is found for all three measures of company size. Finally the results support the hypothesis that there exists a significant positive correlation between the quality of risk disclosures and company size for both the period 2005-2006 and the period 2007-2008; a significant positive relationship is found for all the three measures of company size, namely natural logarithm of market capitalization, natural logarithm of total assets and the natural logarithm of turnover.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:https://purl.utwente.nl/essays/61150
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