Financial Risk Disclosure: Evidence From Albanian And Italian Companies
In recent years standard setters, regulators and professional bodies worldwide have shown an increased interest in risk reporting. This has reflected the fallacy of the financial reporting model to communicate a company’s risk profile, the recent scandals and the financial crisis. The European Union, the International Accounting Standards Board (IASB) and other national standard settershave introduced specific requirements in order to impose companies to highlight the principal financial risks and uncertainties that they face.The idea is that high-quality risk disclosure help investors and other market participants in their decision-making process, by providing a better understanding of the risk exposures and risk management practices of companies.
Previous studies show large heterogeneity in risk reporting within individual countries and identify size as key determinant of risk disclosure. A few researches propose a cross-country investigation of risk reporting and to date there is a lack of evidence about companies operating in Southern Europe, especiallyin the Balkans.
The aim of this study is twofold. First, we fill this gap by analyzingrisk reporting regulations in Albania and in Italy to examine the different requirements. Second, we examine risk information disclosed by a sample of 12 Albanian companies and 12 Italian companies within their annual reports, using content analysis. Due to small sample size we offer preliminary findings about financial risk disclosure. The results show that on average Albanian companies disclose less information on financial riskthan Italian companies. Different explanations can be given for this evidence: i) risk disclosure regulationis less incisive in Albania, because it is limited to inform investors about the relevance of financial instruments and the terms and conditions of loans; ii) Albanian companies have fewer incentives to disclose risk information than Italian companies.
Keywords: Financial risk disclosure, risk reporting, risk disclosure, content analysis, cross-country investigation
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