Oehler, A., Neuss, C., 2023, Does the Stock Market Care about Firms’ Risk Management and Risk Management Disclosure?; Behavioural Finance Working Group 2023 Conference, London, June 12-13.
Abstract
In this study, we analyze annual reports to explore the relationship between firms' risk management disclosures and idiosyncratic volatility (IVOL). We assume that the disclosure of information about risk management practices leads to a reduction in IVOL. Our analysis focuses on companies listed on the German CDAX index over the period from 2002 to 2020. The findings reveal that companies which disclose comprehensive details about their engagement in the cybernetic cycle of risk management experience a notable decrease in IVOL in the following year. This study also includes an analysis with a subset of firms that have reported the adoption of an enterprise risk management (ERM) system. The study does not support a negative relationship between the disclosure of ERM and IVOL. Our results suggest that the stock market places greater value on disclosures related to specific risk adjustment strategies and risk control rather than on the adoption of an organizational risk management framework as the modern ERM framework. This highlights the value of risk management disclosure and especially the importance of the risk management process which is relevant for managers, stakeholders, regulators as well as for investors.
Keywords
Risk Management Disclosure, Idiosyncratic Risk, Idiosyncratic Volatility, Company Risk Management
JEL Classifications
G30, G32, D83
Zuvor:
Oehler, A., Neuss, C., 2023, Does the Stock Market Care about Firms’ Risk Management and Risk Management Disclosure?; School of Finance and Accounting at Westminster Business School, University of Westminster, Finance and Accounting 2023 Annual Research Symposium, June 15-16; Future Finance and Economics Association 2nd Conference on INternational Finance; Sustainable and Climate Finance and Growth, June 18-20; 26th Financial Reporting and Business Communication Conference 2023, July 6-7; IRMC International Risk Management Conference 2023, July 6-7; Operations Research 2023, August 29 - September 1.
