Risk-related disclosures by non-finance companies: Portuguese practices and discloser characteristics

Abstract

Purpose — We assess the risk-related disclosure practices in annual reports for 2005 of Portuguese companies in the non-finance sector.

Design/methodology/approach — We conduct a content analysis of a sample of 81 companies (42 listed and 39 unlisted). In considering corporate governance effects, the sample is reduced to the 42 listed companies that are required to disclose a corporate governance report.

Findings —Implementation of IAS/IFRS and the European Union’s Modernisation Directive in 2005 did not affect the quantity and quality of risk-related disclosures positively. Disclosures are generic, qualitative, and backward-looking. Public visibility (as assessed by size and environmental sensitivity) is a crucial influence in explaining risk-related disclosures: companies appear to manage their reputation through disclosure of risk-related information. Agency costs associated with leverage are important influences also. In listed companies, the presence of independent directors improves the level of risk-related disclosures.

Research limitations —Content analysis does not allow readily for in-depth qualitative inquiry. The coding instrument is subject to coder bias. Information about risk can be provided in sources other than annual reports. The study is confined to one year/one country and pre-dates the global financial crisis (2008) and the implementation of IFRS 7 (2007).

Originality/value — The results point to the desirability of enhancing accountability by mandating further disclosure of substantive and relevant risk-related information in company annual reports. The risk-related disclosures observed are shown to be explained by a confluence of agency theory, legitimacy theory and resources-based perspectives.