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Development of a risk disclosure index and its application in an Indian context

MV Shivaani (Department of Management Studies, Indian Institute of Management Nagpur, Nagpur, India)
P.K. Jain (Department of Management Studies, Indian Institute of Technology Delhi, Delhi, India)
Surendra S. Yadav (Department of Management Studies, Indian Institute of Technology Delhi, Delhi, India)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 24 October 2019

Issue publication date: 8 January 2020

837

Abstract

Purpose

This paper aims to gauge the quality of risk disclosure in 3,872 annual reports of Indian corporates, using a risk disclosure index (RDI) developed to capture both quality and quantity of risk disclosures.

Design/methodology/approach

Focussing on 69 risk items, the paper uses manual textual analysis and scores risk items using an ordinal scale, as opposed to the general practice of using a dichotomous scale.

Findings

The average risk index is low, but greater in the post-recession period than in the pre-recession period. Most disclosures are qualitative, both backward and forward-looking, and exhibit a negative tone. In addition, company age and industry sector have a significant impact on disclosure levels.

Research limitations/implications

The choice and weighting of semantic qualities used to construct RDIs used in disclosure studies are inherently subjective. This exploratory study uses univariate analysis and does not explore the reasons for poor disclosure.

Practical implications

In addition to its usefulness for investors and companies’ management, the findings of non-compliance with certain mandatory provisions and a low average RDI is particularly relevant for policymakers and regulatory bodies.

Originality/value

Development of a summary measure/RDI that is novel in its differential weighting of the semantic qualities pertaining to quantification, time-orientation and tone. Further, it serves as an exploratory study about risk disclosure practices in the Indian context that reveals notable differences from findings of previous risk disclosure research. Moreover, the study examines the relationship between firms’ age and risk disclosure levels, a largely ignored aspect in disclosure research.

Keywords

Citation

Shivaani, M., Jain, P.K. and Yadav, S.S. (2020), "Development of a risk disclosure index and its application in an Indian context", Managerial Auditing Journal, Vol. 35 No. 1, pp. 1-23. https://doi.org/10.1108/MAJ-07-2016-1403

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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