Risk reporting practices by companies in the non finance sector: evidence from Portugal

Abstract

Some theories, as agency theory or signalling theory raised the problem related with the information asymmetry between the shareholders and the managers. One way of reducing this asymmetry is to pressure the companies to disclose more risk-related information. In our research we try to determine the risk reporting practices among Portuguese non-financial companies. For this purpose a content analysis of 81 individual and consolidated annual reports, from the year 2005, of Portuguese companies listed on the Eurolist Lisbon stock exchange market, and on the un-regulated market and not listed companies was made. We concluded that managers, at the time of reporting information about risk, adopt strategies of “impression management” consistent with the attribution theory. We also conclude that almost all of the information disclosed was generic, qualitative and backward-looking, expressing a gap between the risk reporting practices and the usefulness of this kind of information. Therefore, this study is relevant for risk disclosure regulation.