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Risk Disclosure and Firm Value: Evidence from the United Kingdom

Author

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  • Marta Tache

    (University of Economic Studies, Bucharest, Romania)

Abstract

The 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.

Suggested Citation

  • Marta Tache, 2021. "Risk Disclosure and Firm Value: Evidence from the United Kingdom," Central European Economic Journal, Sciendo, vol. 8(55), pages 15-24, January.
    • Handle: RePEc:vrs:ceuecj:v:8:y:2021:i:55:p:15-24:n:4
    DOI: 10.2478/ceej-2021-0002
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    More about this item

    Keywords

    market valuation; risk disclosures; IFRS 7; downside risk;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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