Risk Reporting in the Banking Sector: Risk Exposure versus Risk Management

This paper investigates the formulation of risk reporting and its influence on individuals’ information processing and judgment and decision-making. In Germany, disclosing companies provide much more information about their risk management system and less about their risk exposure. It is questioned whether this formulation is appropriate to inform the users sufficiently according to the legislators’ aim – i. e., that risk reporting should provide useful information for individuals to decide independently about their current and prospective financial engagement. Using an experimental approach and basing on recent exploratory research another content-related arrangement is examined. The current study shows how another formulation of risk reporting, namely providing more risk exposure and fewer risk management system information, can reduce individuals’ cognitive strain and the possibility of an overload, and can lead to improved performances in individuals’ judgment and decision-making.