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Risk disclosures, international orientation, and share price informativeness: Evidence from China

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  • Tan, Youchao
  • Zeng, Cheng Colin
  • Elshandidy, Tamer

Abstract

This paper examines the impact of textual risk disclosure on the amount of firm-specific information incorporated into share prices, as measured by stock price synchronicity. Using a sample of Chinese listed firms, we find that synchronicity is inversely associated with the extent of risk disclosure, suggesting that risk disclosure is firm specific and useful to investors. In addition, our results show that the usefulness of risk information is statistically and economically more pronounced among internationally oriented firms than domestically oriented ones. This result is consistent with the necessity for risk disclosure being more meaningful when it relates to greater uncertainty. Finally, we find that internationally oriented firms tend to disclose more risk factors than their domestically oriented counterparts. Overall, our results shed light on the current debate over whether narrative sections of annual reports convey useful information to investors.

Suggested Citation

  • Tan, Youchao & Zeng, Cheng Colin & Elshandidy, Tamer, 2017. "Risk disclosures, international orientation, and share price informativeness: Evidence from China," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 29(C), pages 81-102.
    • Handle: RePEc:eee:jiaata:v:29:y:2017:i:c:p:81-102
    DOI: 10.1016/j.intaccaudtax.2017.08.002
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    Cited by:

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    2. Imen Derouiche & Riadh Manita & Anke Muessig, 2021. "Risk disclosure and firm operational efficiency," Annals of Operations Research, Springer, vol. 297(1), pages 115-145, February.
    3. Ibrahim, Awad Elsayed Awad & Hussainey, Khaled & Nawaz, Tasawar & Ntim, Collins & Elamer, Ahmed, 2022. "A systematic literature review on risk disclosure research: State-of-the-art and future research agenda," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. Bing Wang & Kung‐Cheng Ho & Xinyu Liu & Yan Gu, 2022. "Industry cash flow volatility and stock price crash risk," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 356-371, March.
    5. Haga, Jesper & Högholm, Kenneth & Sundvik, Dennis, 2022. "Peer firms’ reporting frequency and stock price synchronicity: European evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).
    6. Bassyouny, Hesham & Abdelfattah, Tarek & Tao, Lei, 2022. "Narrative disclosure tone: A review and areas for future research," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).
    7. Elshandidy, Tamer & Ahmed, Yousry, 2023. "Stock price informativeness of risk disclosure: Does time orientation matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 149-162.

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    Keywords

    Risk disclosure; Stock price synchronicity; International orientation;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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