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Risk Disclosure and Company Unsystematic, Systematic, and Total Risks

Author

Listed:
  • Ousayna Zreik

    (ESC Rennes School of Business)

  • Wael Louhichi

    (ESSCA SCHOOL OF MANAGEMENT)

Abstract

Recently, researchers have largely studied the impact of risk communication on several factors. In this paper, we examine the association between the communication about risk through annual reports and unsystematic, systematic, and total risks. We use the content analysis method to measure risk communication and the market model to measure the three types of risk. We find that increased risk disclosure is associated with decreased unsystematic and total risks and increased systematic risk. Two complementary analyses are performed. The first of these analyses examines the impact of risk communication on company risks before, during and after the financial crisis of 2008. The second analysis distinguishes high-risk from low-risk companies. The results reveal that the impact of risk communication on company risks depends on estimated period (pre-crisis, during crisis or post-crisis). Moreover, we observe that low-risk companies reduce their risk level through more risk communication.

Suggested Citation

  • Ousayna Zreik & Wael Louhichi, 2017. "Risk Disclosure and Company Unsystematic, Systematic, and Total Risks," Economics Bulletin, AccessEcon, vol. 37(1), pages 448-467.
    • Handle: RePEc:ebl:ecbull:eb-16-00531
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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