Risk Disclosure During the Financial Crisis

Nowadays, the perception of risk is changing. In the past, risk is seen negatively, while in contemporary times, risk is viewed in either a positive or negative fashion in response to outcomes of a variety of events. Stakeholders need more information on risk disclosure that assists them in decision making and also to them better understanding companies’ social responsibility positions due to the duality perspectives of risk disclosure. According to Beretta and Bozzoland (2004) state that the increase in complexity of business strategies, operations and regulations makes it harder for investors to clearly understand financial information without good explanations of risk factors.

So that, risk disclosures in financial statements are considered very important in contemporary times exacerbated by the global shock of ongoing huge accounting irregularities of companies such as Enron, Parmalat, Worldcom, and Xerox and the pervasive concerns about risk during the 2007-2009 Global Financial Crisis (GFC) period. These highly published failures lead to great public unease as stakeholders become increasingly distrustful of a company’s financial statements. To help overcome public distrust, better communication is needed and regulators are beginning to react. Risk communication can improve stakeholders’ understanding of a company’s social responsibility profile.

There are four key independent predictor in determine voluntary risk disclosure which are country, company size, managerial ownership and board independence. Firstly, previous researchers find that country or region is one of the factors explaining the extent of voluntary disclosure to assess the comparative importance of national influences in relation to other potential factors. Risk disclosure levels will vary in the annual reports of listed manufacturing companies across the various countries. Secondly, voluntary disclosure is related to firm-size. Larger companies are likely to communicate a broader...