Risk Management Disclosure: An Empirical Study of Listed Nordic Oil Companies

Abstract

The concept of risk management has received considerable attention following the global financial crisis in 2008, but is yet to be reflected in empirical research examining companies’ risk reporting practices after this crisis. This study seeks to fill this gap in literature by exploring risk management disclosure (RMD) during the period 2007-2016. The study has chosen listed Nordic oil companies as population due to the homogeneous risk environment and reporting standards, making RMD comparable across the industry. The empirical approach aims to quantify the characteristics of RMD in annual reports through developing an index, called Risk Management Disclosure Index (RMDI). The index is constructed based on identified ‘leading practice’ in RMD from existing literature and previous findings. The study examined and analysed the scores in the RMDI to investigate the development in the population throughout the analysed period and the potential value creation thereof. This study has positive development in RMD in the population throughout 2007-2016. In addition, companies appear to disclose risk management more homogeneous in 2016 compared to 2007, although development patterns varied vastly. A negative correlation between RMD and EBIT is suggested by the results, implying that companies disclose more risk management information in times of undesirable financials to retain investor confidence. The study found a positive correlation between RMD and share price. However, findings showed no support of a positive correlation between company’s RMD and EBIT. Thus, the value creation of RMD remains ambiguous in this study. The significance of the results is, however, limited due to noteworthy shortcomings, created by the limited sample size and subjectivity of the analysis of content in the annual reports. The applicability of the RMDI method is expected to contribute to further research.