Abstract
This chapter aims to provide a normative framework to measure the quality of risk disclosures in annual reports . The index uses textual analysis to capture not only the quantity but also the quality of disclosures, based on three semantic attributes, namely, nature (qualitative/quantitative), tense (past/future/both) and tone of the disclosures. The index is based on 69 risk and risk-related items. The index has been empirically computed for the sample 429 non-financial companies for each of the 10 years from 2005 to 2015. In addition, an aggregative analysis, focussing on phase-wise, age-wise and industry-wise analysis has been carried out. Further, a dis-aggregative (variable-wise) detailed analysis has been carried out to gain deeper insights into ‘most/least’ frequently and ‘most/least’ comprehensively disclosed risk items.
The time has come for all evangelists to practice full financial disclosure. The world is watching how we walk and how we talk. We must have the highest standards of morality ethics and integrity if we are to continue to have influence.
—Billy Graham
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Appendix
Appendix
Frequency distribution of items pertaining to risk management (scored on binary scale), industry-wise, (pre-recession (2005–2008); post-recession (2008–2015))
Particulars | Industry | Time-frame | Disclosure of existence of risk mgt. policies | Disclosure of existence of risk governance | Disclosure of existence of risk committee | Disclosure of composition of risk committee | Disclosure of name of risk committee members | Disclosure of risk committee members’ meetings |
|---|---|---|---|---|---|---|---|---|
Observations disclosing (in %) | Agriculture | Pre-recession | 95.83 | 87.22 | 19.03 | 12.78 | 6.39 | 6.39 |
Observations disclosing (in %) | Agriculture | Post-recession | 91.10 | 86.47 | 25.62 | 14.04 | 12.14 | 5.26 |
Observations disclosing (in %) | Agriculture | Total | 92.52 | 86.70 | 23.64 | 13.66 | 10.41 | 5.60 |
Observations disclosing (in %) | Capital goods | Pre-recession | 69.50 | 71.09 | 5.94 | 1.45 | 1.45 | 1.45 |
Observations disclosing (in %) | Capital goods | Post-recession | 83.99 | 83.92 | 23.48 | 15.27 | 12.03 | 7.13 |
Observations disclosing (in %) | Capital goods | Total | 79.64 | 80.07 | 18.22 | 11.12 | 8.86 | 5.42 |
Observations disclosing (in %) | Chemical | Pre-recession | 83.43 | 77.99 | 11.45 | 0.00 | 0.00 | 0.00 |
Observations disclosing (in %) | Chemical | Post-recession | 89.21 | 89.67 | 26.03 | 12.22 | 10.46 | 2.60 |
Observations disclosing (in %) | Chemical | Total | 87.47 | 86.16 | 21.66 | 8.55 | 7.32 | 1.82 |
Observations disclosing (in %) | Diversified | Pre-recession | 78.97 | 81.54 | 11.79 | 2.22 | 0.00 | 2.22 |
Observations disclosing (in %) | Diversified | Post-recession | 89.64 | 86.12 | 16.58 | 13.78 | 8.40 | 7.28 |
Observations disclosing (in %) | Diversified | Total | 86.44 | 84.75 | 15.14 | 10.31 | 5.88 | 5.76 |
Observations disclosing (in %) | FMCG | Pre-recession | 86.45 | 90.20 | 23.44 | 6.05 | 3.75 | 3.75 |
Observations disclosing (in %) | FMCG | Post-recession | 94.24 | 95.19 | 30.28 | 15.47 | 9.23 | 3.68 |
Observations disclosing (in %) | FMCG | Total | 91.90 | 93.69 | 28.23 | 12.64 | 7.59 | 3.70 |
Observations disclosing (in %) | Healthcare | Pre-recession | 78.71 | 70.55 | 11.64 | 1.15 | 0.00 | 0.00 |
Observations disclosing (in %) | Healthcare | Post-recession | 87.12 | 86.18 | 31.97 | 19.12 | 14.09 | 10.29 |
Observations disclosing (in %) | Healthcare | Total | 84.59 | 81.49 | 25.87 | 13.73 | 9.86 | 7.21 |
Observations disclosing (in %) | Housing | Pre-recession | 70.71 | 66.61 | 5.26 | 1.63 | 0.00 | 0.00 |
Observations disclosing (in %) | Housing | Post-recession | 92.26 | 90.48 | 19.91 | 12.71 | 8.97 | 4.19 |
Observations disclosing (in %) | Housing | Total | 85.79 | 83.32 | 15.51 | 9.38 | 6.28 | 2.93 |
Observations disclosing (in %) | ICT | Pre-recession | 93.57 | 82.92 | 4.98 | 3.53 | 2.38 | 0.00 |
Observations disclosing (in %) | ICT | Post-recession | 91.10 | 87.71 | 23.52 | 18.83 | 14.65 | 7.19 |
Observations disclosing (in %) | ICT | Total | 91.84 | 86.27 | 17.96 | 14.24 | 10.97 | 5.03 |
Observations disclosing (in %) | Media | Pre-recession | 96.67 | 86.67 | 0.00 | 0.00 | 0.00 | 0.00 |
Observations disclosing (in %) | Media | Post-recession | 100.00 | 100.00 | 11.84 | 9.93 | 7.96 | 5.92 |
Observations disclosing (in %) | Media | Total | 99.00 | 96.00 | 8.29 | 6.95 | 5.57 | 4.14 |
Observations disclosing (in %) | Metal | Pre-recession | 87.53 | 87.29 | 10.65 | 4.72 | 0.00 | 0.00 |
Observations disclosing (in %) | Metal | Post-recession | 93.10 | 91.93 | 26.98 | 18.95 | 13.74 | 10.88 |
Observations disclosing (in %) | Metal | Total | 91.43 | 90.54 | 22.08 | 14.68 | 9.62 | 7.62 |
Observations disclosing (in %) | Miscellaneous | Pre-recession | 89.54 | 89.54 | 16.76 | 5.69 | 1.80 | 0.00 |
Observations disclosing (in %) | Miscellaneous | Post-recession | 90.57 | 91.18 | 23.85 | 16.56 | 8.52 | 5.65 |
Observations disclosing (in %) | Miscellaneous | Total | 90.26 | 90.69 | 21.72 | 13.30 | 6.50 | 3.95 |
Observations disclosing (in %) | Oil and gas | Pre-recession | 81.04 | 74.03 | 9.55 | 0.00 | 0.00 | 0.00 |
Observations disclosing (in %) | Oil and gas | Post-recession | 85.92 | 87.65 | 41.23 | 14.03 | 8.08 | 5.70 |
Observations disclosing (in %) | Oil and gas | Total | 84.45 | 83.56 | 31.72 | 9.82 | 5.66 | 3.99 |
Observations disclosing (in %) | Power | Pre-recession | 84.00 | 86.22 | 16.65 | 13.04 | 2.22 | 0.00 |
Observations disclosing (in %) | Power | Post-recession | 94.42 | 94.39 | 33.45 | 18.61 | 8.12 | 2.97 |
Observations disclosing (in %) | Power | Total | 91.29 | 91.94 | 28.41 | 16.94 | 6.35 | 2.08 |
Observations disclosing (in %) | Textile | Pre-recession | 74.07 | 58.04 | 7.79 | 7.79 | 0.00 | 0.00 |
Observations disclosing (in %) | Textile | Post-recession | 88.15 | 77.32 | 24.17 | 8.93 | 9.82 | 7.14 |
Observations disclosing (in %) | Textile | Total | 83.93 | 71.54 | 19.25 | 8.59 | 6.88 | 5.00 |
Observations disclosing (in %) | Transport | Pre-recession | 84.38 | 79.02 | 9.52 | 4.32 | 0.00 | 0.00 |
Observations disclosing (in %) | Transport | Post-recession | 93.37 | 87.54 | 25.92 | 15.05 | 10.61 | 4.55 |
Observations disclosing (in %) | Transport | Total | 90.67 | 84.98 | 21.00 | 11.83 | 7.43 | 3.19 |
Particulars | Industry | Time-frame | Disclosure of risk committee members’ meetings attendance | Disclosure of risk committee remit | ERM | Risk management section | Absence of risk and concern section in MD&A | Absence of threats and opportunities section in MD&A |
|---|---|---|---|---|---|---|---|---|
Observations disclosing (in %) | Agriculture | Pre-recession | 4.31 | 0.00 | 0.00 | 12.78 | 17.08 | 25.56 |
Observations disclosing (in %) | Agriculture | Post-recession | 4.31 | 0.00 | 4.48 | 6.20 | 14.32 | 19.58 |
Observations disclosing (in %) | Agriculture | Total | 4.31 | 0.00 | 3.13 | 8.18 | 15.15 | 21.37 |
Observations disclosing (in %) | Capital goods | Pre-recession | 1.45 | 0.00 | 0.00 | 6.07 | 33.06 | 25.24 |
Observations disclosing (in %) | Capital goods | Post-recession | 7.13 | 1.10 | 2.75 | 10.86 | 16.03 | 15.39 |
Observations disclosing (in %) | Capital goods | Total | 5.42 | 0.77 | 1.93 | 9.42 | 21.14 | 18.34 |
Observations disclosing (in %) | Chemical | Pre-recession | 0.00 | 0.00 | 6.30 | 5.29 | 19.42 | 24.93 |
Observations disclosing (in %) | Chemical | Post-recession | 2.16 | 0.00 | 9.32 | 7.45 | 16.67 | 17.93 |
Observations disclosing (in %) | Chemical | Total | 1.52 | 0.00 | 8.41 | 6.81 | 17.49 | 20.03 |
Observations disclosing (in %) | Diversified | Pre-recession | 0.00 | 0.00 | 2.22 | 0.00 | 4.44 | 23.59 |
Observations disclosing (in %) | Diversified | Post-recession | 2.86 | 2.69 | 4.43 | 0.00 | 3.59 | 15.79 |
Observations disclosing (in %) | Diversified | Total | 2.00 | 1.88 | 3.76 | 0.00 | 3.84 | 18.13 |
Observations disclosing (in %) | FMCG | Pre-recession | 3.75 | 0.00 | 4.86 | 5.20 | 17.23 | 24.47 |
Observations disclosing (in %) | FMCG | Post-recession | 3.68 | 0.00 | 12.51 | 5.37 | 12.44 | 17.37 |
Observations disclosing (in %) | FMCG | Total | 3.70 | 0.00 | 10.21 | 5.32 | 13.87 | 19.50 |
Observations disclosing (in %) | Healthcare | Pre-recession | 0.00 | 0.00 | 7.09 | 6.91 | 28.34 | 30.60 |
Observations disclosing (in %) | Healthcare | Post-recession | 9.33 | 0.94 | 11.13 | 10.67 | 17.61 | 28.62 |
Observations disclosing (in %) | Healthcare | Total | 6.53 | 0.66 | 9.91 | 9.54 | 20.83 | 29.21 |
Observations disclosing (in %) | Housing | Pre-recession | 0.00 | 0.00 | 0.00 | 0.76 | 28.18 | 38.30 |
Observations disclosing (in %) | Housing | Post-recession | 3.63 | 0.00 | 5.60 | 2.62 | 11.40 | 16.80 |
Observations disclosing (in %) | Housing | Total | 2.54 | 0.00 | 3.92 | 2.06 | 16.43 | 23.25 |
Observations disclosing (in %) | ICT | Pre-recession | 0.00 | 0.00 | 9.67 | 15.33 | 20.83 | 25.98 |
Observations disclosing (in %) | ICT | Post-recession | 6.92 | 2.13 | 29.82 | 19.24 | 9.75 | 17.99 |
Observations disclosing (in %) | ICT | Total | 4.84 | 1.49 | 23.77 | 18.07 | 13.08 | 20.39 |
Observations disclosing (in %) | Media | Pre-recession | 0.00 | 0.00 | 0.00 | 0.00 | 6.67 | 6.67 |
Observations disclosing (in %) | Media | Post-recession | 5.92 | 0.00 | 13.71 | 0.95 | 4.05 | 5.00 |
Observations disclosing (in %) | Media | Total | 4.14 | 0.00 | 9.60 | 0.67 | 4.83 | 5.50 |
Observations disclosing (in %) | Metal | Pre-recession | 0.00 | 0.00 | 4.41 | 1.45 | 9.13 | 25.24 |
Observations disclosing (in %) | Metal | Post-recession | 4.00 | 0.00 | 10.31 | 7.45 | 10.38 | 21.29 |
Observations disclosing (in %) | Metal | Total | 2.80 | 0.00 | 8.54 | 5.65 | 10.01 | 22.47 |
Observations disclosing (in %) | Miscellaneous | Pre-recession | 0.00 | 0.00 | 0.90 | 5.98 | 23.65 | 35.62 |
Observations disclosing (in %) | Miscellaneous | Post-recession | 4.65 | 0.32 | 8.77 | 6.18 | 18.45 | 24.46 |
Observations disclosing (in %) | Miscellaneous | Total | 3.26 | 0.23 | 6.41 | 6.12 | 20.01 | 27.81 |
Observations disclosing (in %) | Oil and gas | Pre-recession | 0.00 | 0.00 | 4.60 | 7.01 | 21.34 | 23.91 |
Observations disclosing (in %) | Oil and gas | Post-recession | 4.11 | 0.00 | 23.31 | 3.58 | 6.99 | 8.79 |
Observations disclosing (in %) | Oil and gas | Total | 2.88 | 0.00 | 17.70 | 4.61 | 11.30 | 13.32 |
Observations disclosing (in %) | Power | Pre-recession | 0.00 | 0.00 | 7.68 | 9.43 | 20.99 | 23.31 |
Observations disclosing (in %) | Power | Post-recession | 2.22 | 0.00 | 14.21 | 8.37 | 13.45 | 19.74 |
Observations disclosing (in %) | Power | Total | 1.55 | 0.00 | 12.25 | 8.69 | 15.71 | 20.81 |
Observations disclosing (in %) | Textile | Pre-recession | 0.00 | 0.00 | 2.22 | 22.90 | 12.73 | 18.14 |
Observations disclosing (in %) | Textile | Post-recession | 6.25 | 0.89 | 9.88 | 19.82 | 5.42 | 14.52 |
Observations disclosing (in %) | Textile | Total | 4.38 | 0.63 | 7.58 | 20.75 | 7.61 | 15.61 |
Observations disclosing (in %) | Transport | Pre-recession | 0.00 | 0.00 | 2.08 | 5.21 | 16.22 | 23.81 |
Observations disclosing (in %) | Transport | Post-recession | 2.07 | 0.00 | 8.27 | 10.52 | 17.25 | 16.88 |
Observations disclosing (in %) | Transport | Total | 1.45 | 0.00 | 6.41 | 8.93 | 16.94 | 18.96 |
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Shivaani, M.V., Jain, P.K., Yadav, S.S. (2019). Normative Framework for Risk Disclosure Index and Its Empirical Analysis. In: Understanding Corporate Risk. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-8141-6_4
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