JOURNAL OF INTERNATIONAL ACCOUNTING RESEARCH

Vol. 10, No. 2

2011
pp. 122

American Accounting Association

DOI: 10.2308/jiar-10081

Attributes of Corporate Risk Disclosure: An

International Investigation in the
Manufacturing Sector
Michael Dobler, Kaouthar Lajili, and Daniel Zeghal
ABSTRACT: This paper is the first multi-country investigation of comprehensive
corporate risk disclosure. Based on a detailed content analysis of 160 annual reports, we
analyze the attributes and the quantity of risk disclosure and its association with the level
of firm risk in the U.S., Canadian, U.K., and German settings. We find a consistent
pattern where risk disclosure is most prevalent in management reports, concentrates on
financial risk categories, and comprises little quantitative and forward-looking disclosure
across sample countries. In terms of risk disclosure quantity, U.S. firms generally
dominate, followed by German firms. Cross-country variation in risk disclosure attributes
can only partly be linked to domestic disclosure regulation, suggesting that risk
disclosure incentives play an important role. While risk disclosure quantity appears to be
positively associated with proxies of firm risk in the North American settings, we find a
negative association with leverage for Germany. This coincides with a concealing
motive implied by an insider role of banks in the German financial setting.
Keywords: content analysis; risk disclosure; risk management.

I. INTRODUCTION

he recent global financial crisis has significantly raised research interest in corporate risk
management and disclosure around the world and triggered regulatory reforms and
responses from various government agencies and accounting standards setters. The debate
goes beyond the financial sectors. The lack of transparency and clarity in risk disclosure and the
increasing complexity of business supported by constantly improving information technologies
have created a need to conduct more research in accounting and related fields to study how public
firms are (descriptive) and should be (prescriptive) disclosing information about their risk profile,
tolerance levels, risk management, and monitoring processes. This study contributes to this
emerging research stream by exploring similarities and differences between various regulatory
Michael Dobler is a Professor at the Dresden University of Technology, and Kaouthar Lajili is an Associate
Professor and Daniel Zeghal is a Professor, both at the University of Ottawa Telfer School of Management.
Financial support from the Alexander von Humboldt Foundation TransCoop program (Germany) and the Accounting
Research Center at the Telfer School of Management (University of Ottawa), and valuable comments by the editor, two
anonymous reviewers, and participants of the EAA Annual Conference 2010 are gratefully acknowledged.

Published Online: November 2011

Dobler, Lajili, and Zeghal

contexts in the field of risk disclosure behavior by public nonfinancial firms in four countries,
namely the U.S., Canada, the U.K., and Germany.
While a considerable body of literature reflects detailed academic work on risk management,
there is still limited research on corporate risk disclosure (Woods et al. 2007). In general terms, risk
disclosure shall reduce the information asymmetry between managers and outsiders by providing
users of financial reports with information on the risks a company faces and on how these risks are
managed (Jorgensen and Kirschenheiter 2003; Linsley and Shrives 2006; Dobler 2008). Risk
disclosure covers a broad set of information on risk sources and means of risk management varying
in location, scope, and nature. Since risk disclosure is a relatively new field for research, there is
only piecemeal evidence on its attributes and determinants to date.
Prior research has found large heterogeneity in risk disclosure within individual countries with
firm size emerging as a key determinant of risk disclosure quantity (Vielmeyer 2004 for Germany;
Beretta and Bozzolan 2004 for Italy; Lajili and Zeghal 2005a, 2005b for Canada; Linsley and
Shrives 2006 for the U.K.; Konishi and Mohobbot 2007 for Japan; Amran et al. 2009 for Malaysia).
The existing body of empirical evidence on attributes of risk disclosure has three major limitations.
First, it provides limited evidence in each country by focusing either on specific disclosure items,
such as market risk disclosure under FRR 48 in the U.S. (Rajgopal 1999; Roulstone 1999;
Linsmeier et al. 2002), or on specific sections of the annual reports, such as the risk reporting
section in German management reports (Bungartz 2003; Kajuter 2004; Vielmeyer 2004). Second,
there is no larger-scale, cross-country investigation of risk disclosure to date. Third, there is a lack
of evidence on whether and, if so, how risk disclosure is associated with the level of firm risk in
different regulatory environments.
This paper addresses these gaps by conducting a detailed international analysis of
comprehensive corporate risk disclosure. It explores both the notes to financial statements and
the management reports, such as the Managements Discussion and Analysis, across four countries.
The research questions are threefold: (1) What are the risk disclosure characteristics in each country
along the dimensions location, nature of reference to risk, type of information, time frame of
disclosure, and risk category? (2) Are there differences in risk disclosure between the countries
along these dimensions? (3) Is there a relationship between risk disclosure quantity and the level of
firm risk internationally? As advocated by Schrand and Elliott (1998) and Linsley and Shrives
(2006), among others, these questions are of interest to assess and compare characteristics of risk
disclosure in their relation to disclosure regulation and institutional settings. The third question
particularly addresses the open debate as to whether a disclosure or concealing motive prevails in a
riskier firms disclosure (Ahmed and Courtis 1999; Jorgensen and Kirschenheiter 2003; Dobler
2008). The paper relies on a more detailed content analysis than any prior study. It explores the
annual reports of the year 2005 of matched samples of 160 listed firms in the manufacturing sector
in the U.S., Canada, the U.K., and Germany. We choose the manufacturing sector to cover a
nonfinancial sector facing a broad set of risks to be managed. The countries selected are of
particular interest in four major ways. First, they represent the largest economies with the largest
domestic market capitalization in North America and Europe, respectively. Second, they show a
long-standing discussion on risk disclosure and the most advanced regulation on risk disclosure,
allowing for distinct access to relevant risk disclosure items to code and analyze (Combes-Thuelin
et al. 2006). Third, sample countries cover a range of properties with regards to institutional
settings, standards applied in financial statements, and in management reports suggesting some
different attributes of risk disclosure. Finally, the countries selected were represented in the initial
working group on Management Commentary at the International Accounting Standards Board,
which recently issued a related practice statement on management and risk reporting (IASB 2005,
2010).
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Volume 10, No. 2, 2011

Attributes of Corporate Risk Disclosure: An International Investigation

Among existing risk disclosure studies, our paper is most closely related to work by Linsley
and Shrives (2006) but goes beyond in at least three major ways. First, they study risk disclosure by
79 U.K. nonfinancial firms, whereas we select an international and larger sample in one industry to
mitigate cross-sector variation. Second, our coding instrument is more detailed and particularly
includes the location (management report versus notes) and the type of reference to risk (risk source
versus risk management), allowing for additional inferences to be drawn. Third, Linsley and
Shrives (2006) report univariate evidence on the relationship between risk disclosure and firm size
or firm risk. We use multiple regressions to determine the relationship of risk disclosure and various
proxies for the level of firm risk while controlling for firm size.
Main results show a consistent pattern of risk disclosure focused on the management report and
on financial risk, with relatively less quantitative and forward-looking disclosure across all
subsamples. U.S. firms generally provide most risk disclosure apart from the nature or
environmental risk category, where U.K. firms dominate. Similar risk disclosure observed in the
notes of U.K. and German firms seems consistent with some risk disclosure harmony under the
International Financial Reporting Standards (IFRS). Yet, cross-country variation in risk disclosure
attributes can only be partly linked to domestic disclosure regulation. This suggests a prominence of
risk disclosure incentives even in regulated regimes as implied by analytical work (Dobler 2008).
Regression results consistently reveal a size effect and imply that risk disclosure quantity is
associated with the level of firm risk. While there is a positive association in the North American
settings, we particularly find a negative association between risk disclosure quantity and leverage
for Germany. This provides further evidence coinciding with the notion of an insider role of banks
in the German financial setting (Leuz and Wustemann 2004; Dittmann et al. 2010). Results
contribute to the existing body of disclosure research on both a per-country and an international
level and can provide impetus to the recent debate of risk disclosure regulation and practice among
national and international regulatory bodies as they try to harmonize their efforts.
II. RISK DISCLOSURE REGULATIONS
Acknowledging the importance of risk disclosure, financial accounting bodies and security
exchange commissions have enhanced their risk reporting requirements during recent years.
Internationally, our sample countriesthe U.S., Canada, the U.K., and Germanyhave the most
advanced risk disclosure regulation to date, requiring risk disclosure in both the notes to financial
statements and supplementary management reports. Advanced regulation, albeit based in different
institutional settings, eases assessing the relevant risk disclosure items to code and analyze in this study.
Unlike the U.S. and Canada, both European countries have equal risk disclosure requirements
in the sample period due to adopting IFRS for consolidated financial statements in 2005
(Regulation [EC] 1606/2002). Yet, risk disclosure requirements in the notes show similarities
across all of our sample countries. First, they focus on financial risksuch as credit, currency,
interests rate, and liquidity risk largely linked to the use of financial instrumentsand on related
financial risk management, requiring both qualitative and quantitative disclosure (SFAS 107, 115,
and 133 for the U.S.; CICA Handbook Sections 3860 to 3682 for Canada; IAS 32 and IFRS 7 for
the U.K. and Germany).1 Noteworthy, the U.S. mandates specific, detailed, and usually more
complex risk disclosure, while the Canadian regulators appear to deal more comprehensively with
different types of financial instruments use and exposure disclosure.2 Particularly, Canadian
1

Amendments to these financial instruments disclosure requirements are ongoing, and their effectiveness and
potential usefulness in an increasingly global business world remain an open and controversial question,
especially following the recent financial market meltdown and credit crisis.
In its Accounting Standards Codification system, the U.S. Financial Standards Board has organized U.S. GAAP
by topic.

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Volume 10, No. 2, 2011

Dobler, Lajili, and Zeghal

disclosure requirements seem quite in line with IAS 32 and IFRS 7, respectively. Second, all
regimes more broadly mandate disclosure on both estimation uncertainties in valuation or
measurement and contingencies (SFAS 5 and SOP 946 for the U.S.; CICA Handbook Sections
1508 and 3290 for Canada; IAS 1 for the EU countries). Both North American regimes go beyond
mandatory risk disclosure under IFRS by requiring information on risk concentrations (SFAS 131
and SOP 946 in the United States; CICA Handbook Sections 3841 and 1701 for Canada). Going
concern disclosure is required by IAS 1 while subject to auditor reporting standards in both the U.S.
and Canada (SAS 59 in the U.S.; AuG-17 in Canada).
In addition to financial statements, all four countries require risk disclosure in the management
report sections, i.e., the Managements Discussion and Analysis in North America and the Operating
and Financial Review or Management Report in Europe. The regimes share emphasis on financial
risk and require disclosure on trends and principal risks or uncertainties firms face and the impact
risks could have on their financial position. Yet, domestic regulation takes different approaches.
Most notably, the U.S. Securities and Exchange Commission requires detailed disclosure on
off-balance sheet arrangements (FRR 36), internal controls following the Sarbanes-Oxley Act, and
qualitative and quantitative disclosure on market risk including forward-looking information (FRR
48). In contrast, forward-looking disclosure is only encouraged in Canada (Lajili and Zeghal 2005a),
and disclosure of nonfinancial types of risk and risk management is voluntary to a large extent in
Canada (guidance is provided by both the CICA and exchange regulators such as the Ontario
Securities Commission). Domestic standards also apply in both European sample countries, as
management reports are not subject to IFRS.3 In the U.K., the Companies Act requires a description
of principal risks and uncertainties faced by the firm and main factors likely to affect the firms
future development supplemented by disclosure on the firms risk management required by
Reporting Standard RS 1. More comprehensively, the German Accounting Standard GAS 5
mandates a self-contained risk reporting section in the management report, covering risks of any
category. The risk report shall explain the nature of risks and their possible consequences and the
entitys expected future development with its principal risks and chances; describe corporate risk
management; and highlight risks endangering going concern (Dobler 2005). Supplementary
disclosure is required on risks and risk management associated with financial instruments.
This review implies roughly comparable mandatory risk disclosure in the notes but rather
different ones in the management report. With the U.K. and Germany following IFRS, mandatory
risk disclosure items in the notes are selective and emphasize a financial risk disclosure category,
implying a piecemeal and rather rules-based approach across our sample countries. This is less
prevalent in the management reports. Here the very detailed, albeit partly principles-based,
disclosure requirements in the U.S. most clearly contrasts with the pronounced principle-based
approach taken in Germany, the only sample country referred to as a code law country (La Porta et
al. 1998). Either regime allows for discretion, exceeding the discretion inherent in risk disclosure
due to its subjective and partly nonverifiable nature. In consequence, a considerable part of
corporate risk disclosure observed empirically can be assumed to be (quasi-) voluntary and depends
on disclosure incentives even in the presence of disclosure regulation (Linsley and Shrives 2000;
Dobler 2008; Bischof 2009). This suggests that risk disclosure is a function of regulation and
incentives with both factors linked to the institutional and cultural environment and the latter
additionally depending on firm-specific factors.
3

IFRS do not require firms to publish a management report. The IFRS Practice Statement: Management
Commentary issued in December 2010 only provides a broad, non-binding framework for the presentation of
management commentary (IASB 2010, para. IN3). Thus, it seems unlikely to promote a large level of future
harmonization, particularly on risk disclosure in the management report.

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Attributes of Corporate Risk Disclosure: An International Investigation

III. PRIOR EMPIRICAL EVIDENCE

Still relatively few disclosure studies have focused on risk disclosure. While there is published
research based on content analysis in other countries (Beretta and Bozzolan 2004, for Italy; Konishi
and Mohobbot 2007, for Japan; Amran et al. 2009, for Malaysia), prior empirical research has
concentrated on our sample countries individually.
Much of the U.S. research has addressed market risk disclosure under FRR 48. Roulstone
(1999) reports large variation in disclosure format and significant non-compliance. Capital market
related studies imply that FRR 48 disclosure can provide useful information depending on the
disclosure format chosen (Rajgopal 1999; Linsmeier et al. 2002; Thornton and Welker 2004). More
recent evidence by Danckaert et al. (2010) suggests that risk disclosure in Form 20-F by firms
cross-listed in the U.S. outweighs risk information in financial statements in terms of items reported
and is incrementally informative. Yet, there is no published research on comprehensive risk
disclosure of U.S. firms to date.
Apart from research on contingencies and going concern disclosure (Thornton 1983; Boritz
1991), there are two papers addressing comprehensive risk disclosure in Canada. Lajili and Zeghal
(2005a) report considerable variation in disclosure quantity on risk sources and risk management, a
focus on financial and market risk, and a lack of uniformity, quantification, and forward-looking
disclosure. Lajili and Zeghal (2005b) reaffirm these results and find a positive association between
risk disclosure quantity and proxies for effective corporate governance.
In the U.K., survey results reported by Solomon et al. (2000) show that institutional investors
are aware of deficits in risk reporting practice but have diverse attitudes to preferred risk reporting
format, content, and regulation. Linsley and Shrives (2006) explore risk disclosure in 79 annual
reports of listed firms in 2000. Results indicate that qualitative, forward-looking, and good news
risk disclosure are each more prevalent than their counterparts. Univariate results imply a positive
relationship between risk disclosure quantity and firm size, while proxies for the level of firm risk
are insignificant or show mixed results. For 71 FTSE constituents in 2002, Abraham and Cox
(2007) analyze business risk, financial risk, and internal control risk disclosure. Findings suggest
that ownership and governance characteristics are determinants of risk disclosure quantity, while
firms cross-listed in the U.S. provide more risk disclosure. In line with both studies, the ASB (2007)
documents large heterogeneity and deficits in risk disclosure in the Operating and Financial Review
sections in 2006.
In Germany, several studies have addressed risk disclosure in management reports since GAS 5
became effective in 2001 (e.g., Bungartz 2003; Vielmeyer 2004; Kajuter 2004). They document
large variations in disclosure quantity and risk categorization among firms; a size effect in risk
disclosure; a prevalence of qualitative, backward-looking, or non-time-specific disclosure focusing
on general risk factors; and voluminous descriptions of the entitys risk management system.
Bungartz (2003) finds notable non-compliance with GAS 5 requirements, while managers surveyed
assume that their disclosure complies with regulation. In longitudinal studies for 1999 to 2001 and
for 1999 to 2002, respectively, Vielmeyer (2004) and Kajuter (2004) find that risk disclosure
quantity has increased over time. Authors partly attribute this shift to the implementation of GAS 5,
implying some impact of regulation. Yet, all prior German studies neglect risk disclosure in the
notes to financial statements.
This review implies that empirical research merely provides piecemeal evidence on risk
disclosure and its attributes in each of our sample countries. An international investigation of risk
disclosure is missing to date4 and is warranted in the increasingly globalized environment.
4

An exception for the banking sector is the exploratory study of 11 matched pairs of Canadian and U.K. banks by
Linsley et al. (2006).

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Dobler, Lajili, and Zeghal

IV. HYPOTHESES DEVELOPMENT

Given the regulatory background and the gaps in empirical research on risk disclosure, our
paper aims at a detailed international analysis of comprehensive risk disclosure with the following
threefold research objectives: (1) risk disclosure characteristics in each of the four sample countries,
(2) differences in risk disclosure among the countries, and (3) the relationship between risk
disclosure quantity and the level of firm risk in the respective settings. In order to achieve the
objectives, we test the following hypotheses.
The first set of hypotheses is concerned with the characteristics of risk disclosure in each
country. Regulation generally requires selected, but detailed, risk disclosure in the notes to financial
statements and more comprehensive, but less detailed, risk disclosure in the management reports.
While (quasi-) voluntary disclosure might be more prevalent in the management reports, firms
appear to emphasize mandatory risk disclosure in the notes, which are enforced rather thoroughly
(Dobler 2005, 2008; Lajili and Zeghal 2005a). Thus, we state our first hypothesis in the null form:
H1(a): The quantity of risk disclosure in the management report sections of annual reports and
in the notes to financial statements will not differ.
Regulation mandates disclosure on both risk sources and risk management (Linsley and
Shrives 2000; Lajili and Zeghal 2005a). Since there are incentives to provide information on
how a risk is managed whenever a risk source (or factor) is disclosed, our second hypothesis
states:
H1(b): The quantity of disclosure on risk sources and on risk management will not differ.
Although considered useful (Solomon et al. 2000), only little quantitative risk disclosure is
mandatory. Moreover, there are problems to quantify risks (Schrand and Elliott 1998) and
incentives to withhold quantitative data (Dobler 2008). Consistent with findings of prior studies
(Kajuter 2004; Linsley and Shrives 2006), our third hypothesis, thus, states:
H1(c): The quantity of quantitative risk disclosure will be lower than of qualitative risk
disclosure.
Although managers can use forward-looking disclosure to signal management competence and
effective risk management, they may be reluctant to reveal such information because of
countervailing incentives arising from the threat of external effects (Dobler 2008). Moreover, little
forward-looking risk disclosure is mandatory. Consistent with prior evidence (Lajili and Zeghal
2005a; Linsley and Shrives 2006), our fourth hypothesis states:
H1(d): The quantity of forward-looking risk disclosure will be lower than of past, present, or
non-time-specific risk disclosure.
Prior research has shown that actual risk disclosure covers various categories of risk but is
indecisive on whether financial risk disclosure dominates nonfinancial risk disclosure in terms of
quantity (Vielmeyer 2004; Lajili and Zeghal 2005a, 2005b; Abraham and Cox 2007). Regulation
implies an emphasis on financial risk disclosure. Yet, risk disclosure on nonfinancial
categoriesincluding market, nature, operational, and regulatory riskwhich are (quasi-)
voluntary to a large extent, is likely to be as prevalent in sum (Dobler 2005). Thus, the final
hypothesis states:
H1(e): The quantity of financial and nonfinancial risk disclosure will not differ.
Along the above five dimensions, the second hypothesis directly addresses the cross-country
comparison. General disclosure research indicates larger levels of disclosure in common law than in
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Attributes of Corporate Risk Disclosure: An International Investigation

code law countries (Ruland 2005). This would imply low risk disclosure quantity in Germany,
particularly when compared to the U.S. It could, however, be postulated that comprehensive risk
disclosure under GAS 5 will have a mitigating impact. Moreover, the adoption of IFRS in the U.K.
and in Germany implies similar risk disclosure quantity in the notes of the European subsamples.
While differences in risk disclosure regulation imply some differences in risk disclosure quantity,
the role of incentives may impose countervailing effects, given both the regulatory environment and
the cultural perception of risk (Dobler 2008). Given indecisive predictions across the sample
countries, we state the following hypotheses in the null form:
H2: There will be no difference in the quantity of risk disclosure between the countries.
The third hypothesis examines the association between risk disclosure quantity and the level of
firm risk. Disclosure literature has reached indecisive conclusions on whether riskier firms are likely
to provide more risk disclosure (Ahmed and Courtis 1999; Jorgensen and Kirschenheiter 2003;
Dobler 2008). On the one hand, firms with higher levels of risk may be inclined to provide more
risk disclosure to explain the causes and management of this higher risk (disclosure motive). On the
other hand, they may try to conceal risk exposure in order to avoid disclosure cost (concealing
motive). Previous individual-country studies have not found a significant association of risk
disclosure with proxies for the level of firm risk (Lajili and Zeghal 2005b; Linsley and Shrives
2006; Amran et al. 2009). We, thus, state our final hypothesis in the null form:
H3: There will be no association between the level of firm risk and the quantity of risk
disclosure.
V. RESEARCH METHODOLOGY
Sample Selection
We focus our international investigation on listed firms in the manufacturing sector in the U.S.,
Canada, the U.K., and Germany. Selecting the manufacturing sector covers a large sector that faces
a broad set of risk factors and risks to be managed, is likely to mitigate cross-sector differences, and
particularly excludes financial firms. The latter are subject to specific regulations, can be expected
to provide significantly different risk disclosure, and, thus, should be explored independently
(Linsley and Shrives 2006; Bischof 2009).
Sample firms were drawn from Thomson ONE Banker and Mergent-Online databases. We
selected active firms, neither in receivership nor in liquidation, with primary SIC codes 20003999
referring to the manufacturing sector on December 31, 2005, to analyze their annual reports for
fiscal years ending on or covering that date. This ensures that the European sample firms provide
consolidated financial statements and, thus, risk disclosure in the notes according to IFRS. We
excluded firms cross-listed in the U.S. since their risk disclosure is unlikely to be representative of
their home country (Abraham and Cox 2007). After excluding firms with missing data for matching
procedures, Canadian (181) and German (231) firms emerged as limiting factors. Following prior
cross-country disclosure studies (Ruland 2005; Barth et al. 2008; Beck et al. 2010), retained firms
were matched across the four countries by two-digit, primary SIC-codes; by firm size as measured
by total assets; and by profitability, i.e., either profit or loss reported in the sample year. We
obtained results in 47 cross-country observations. Seven cross-country observations had to be
excluded because their full annual reports were either unavailable or unavailable in the English
language to avoid bias introduced by different languages (Beck et al. 2005). Thus, our final sample
consists of 160 firms, i.e., 40 firms in each country.
Table 1 summarizes sample characteristics with regard to size and profitability as used for
matching sample firms. Mean total assets range from thousands U.S.$1,000,463$1,117,542 with
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Dobler, Lajili, and Zeghal

TABLE 1
Sample Characteristics

Total Assets
Mean
Max.
Min.
Std. Dev.
Net Income
Mean
Max.
Min.
Std. Dev.

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

1,021,055
16,499,000
14,614
3,130,313

1,117,542
17,482,000
16,002
3,055,822

1,000,493
16,028,680
13,260
3,003,534

1,006,470
16,517,640
14,264
2,947,079

19,716
230,000
146,194
62,786

26,418
600,279
288,150
118,143

47,291
596,840
23,256
124,876

38,969
545,160
63,079
106,716

Parameters measured in thousands U.S.$.

similar standard deviations across sample countries. Mean net income is positive with a larger range
in each sample. While sample firms may not be representative for the total population of firms in the
manufacturing sector in each country, cross-country results should be understood within the context
of similar size and profitability of matched sample firms.
Coding Instrument
To assess risk disclosure in annual reports across different jurisdictions comprehensively, we
conduct a content analysis of both the management reports and the notes to financial statements and
refer to a broad definition of risk disclosure. With Linsley and Shrives (2006, 389), we refer to risk
disclosure if the reader is informed of any opportunity or prospect, or of any hazard, danger, harm
threat or exposure, that has already impacted upon the company or may impact upon the company
in the future or of the management of any such opportunity, prospect, hazard, harm, threat or
exposure.
Given our research objectives and based on prior studies, our detailed review of regulation, and
a pretest analysis of three annual reports from each country conducted by the authors, we developed
the coding instrument for our study along the five dimensions presented in Table 2.
Consistent with the state-of-the-art content analysis in narrative financial reporting and with
recent risk disclosure studies (Beretta and Bozzolan 2004; Linsley and Shrives 2006; Amran et al.
2009), the unit of analysis in this study is sentence rather than word. Although words can be
counted with high precision technically, they cannot be interpreted and coded without the context of
a sentence (Milne and Adler 1999; Srnka and Koeszegi 2007). Particularly in our international
study, different styles of English language in the countries investigated can be expected to impose
less bias when referring to sentences compared to words. It should be noted that our instrument
captures risk disclosure quantity and not necessarily its quality (Botosan 2004). Yet, our study does
not aim at assessing risk disclosure quality. Rather, we aim at investigating the attributes of risk
disclosure identified in the annual reports and to test the hypotheses derived above.
Since content analysis is inevitably subjective, the coding method needs to be reliable for valid
conclusions to be drawn. To ensure reproducibility in particular, one single coder (an experienced
graduate student) conducted the coding under the supervision of one of the authors. The coder was
provided with disambiguation rules to replicate the pretest coding and to determine whether
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Attributes of Corporate Risk Disclosure: An International Investigation

TABLE 2
Dimensions and Categories of the Coding Instrument
Coding Dimension
Location of risk disclosure

Coding Categories
&
&

Nature of reference to risk

&
&

Type of information

&
&

Time frame

&
&

Risk category

&

&

Management report (MDA)

Notes to financial statements (NFS)
Risk source (RS)
Risk management (RM)
Qualitative information (QL)
Quantitative information (QT)
Past, present, or non-time-specific (PPNTS)
Forward-looking (FW)
Financial (FIN), referring credit, currency, interest rate, liquidity, valuation
uncertainty
Nonfinancial (NFIN), including
 Market (MAR), referring to input or output market
 Nature (NAT), referring to resources, weather, or disaster
 Operations (OPE), referring to logistics, organization, personnel, or
production
 Regulation (REG), referring to compliance or politics

disambiguation rules need to be refined. Five sample annual reports from each country were
independently coded by the coder and one author to test consistency of coding. This yielded a
satisfactory level of inter-coder reliability.
Independent Variables and Regression Models
To test H3, the level of firm risk has to be measured. We use five proxies. The first two have
been used in prior risk reporting studies (Lajili and Zeghal 2005b; Linsley and Shrives 2006;
Amran et al. 2009): beta factor (BET) as a proxy for systematic risk and leverage (LEV as measured
by the ratio of total debt to total assets) as a proxy for financial risk. To more specifically address
nonfinancial risk, we use three additional proxies: degree of operating leverage (DOL), share of
foreign revenue (SFR), and existence of a major customer (MC). DOL is the ratio of earnings to
sales changes, i.e., [DEBITt/EBITt1] to [Dsalest/salest1]. It depicts the extent of flexibility related
to the mix of fixed and variable assets used in a firms production process. Therefore, it proxies
nonfinancial firm risk (Lev 1974; Chiou and Su 2007). SFR is the ratio of foreign revenues to total
revenues. While possibly related to currency risk, a higher SFR more specifically implies higher
nonfinancial risk in international business, e.g., related to market, operations, and regulation
(Goldberg and Heflin 1995). MC is a dummy variable that equals 1 if segmental disclosure
indicates the existence of a major customer. In line with regulatory assertions, major customers
imply higher firm risk exposure, e.g., related to the lack of diversification of customer base, the loss
of a major customer, or regulation (Albuquerque et al. 2010). SFR and MC were collected from
annual reports. Data on the remaining variables were collected from Thomson ONE Banker and
Mergent-Online databases.
We estimate the following regression model to explore the association between risk disclosure
quantity and the level of firm risk for the pooled sample and each country:
RDQ a0 a1 SIZ a2 BET a3 LEV a4 DOL a5 SFR a6 MC e

where firm subscripts are suppressed. The dependent variable (RDQ) is risk disclosure quantity as
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Dobler, Lajili, and Zeghal

10

measured by sentences in the annual reports. It can refer to total risk disclosure or specific
categories of risk disclosure as denoted in Table 2. SIZ (defined as natural logarithm of total assets)
controls for a firms overall disclosure policy. For the pooled regression, we include country
dummies to capture country-level factors. The U.S. is the base country with 0 for all country
dummy variables. The coefficients on country dummy variables measure the incremental
incorporation of Canada, the U.K., and Germany, relative to the U.S.
VI. RESULTS
Descriptive Results
Tables 3 and 4 report the main descriptive results and the individual-country and cross-country
mean differences for sample firms with regard to the H1 and H2. More detailed descriptive data are
presented in Appendix A.
Overall, we identify 32,521 risk-related sentences in the full sample, suggesting an average of
203 sentences in each annual report. Panel A of Table 3 presents total risk disclosure quantity as
measured by sentences identified for the U.S., Canadian, U.K., and German sample firms. We note
that the U.S. sample clearly provides most risk disclosure relative to all others, followed by the
German sample. In general, this pattern holds true across-the-board. The large standard deviations
documented are consistent with prior studies, implying considerable variation in risk disclosure
quantity in each of the respective countries, and indicate that heterogeneity is prevalent even within
the same sector.
Panels B to F of Table 3 report the results with respect to risk disclosure location, nature of
reference to risk, type of information provided, time frame of risk disclosure, and risk category.
Panel B reveals that risk disclosure is more prevalent in the management report sections of annual
reports compared to the notes to financial statements. The mean difference tests for each country
indicate a significant difference, thus contradicting H1(a). The U.S. and Canadian sample firms
appear to have quite similar relative distributions of MDA versus NFS risk disclosure (69 percent
MDA and 31 percents NFS for both). In contrast, German and particularly the U.K. sample firms
seem to use both instruments in a more balanced way to report on risk. One possible explanation
for this difference is probably linked to the regulatory environment and accounting standards.
Panel C refers to the nature of reference to risk as depicted by the content analysis to test H1(b).
Individual-country results indicate that risk sources are more frequently disclosed than risk
management information in Canada and the U.S., while the U.K. firms seem to disclose more on
risk management than on risk sources. The German subsample is the only one where the mean
difference between risk source and risk management disclosure is not significant. Thus, we
conclude that H1(b) is supported only in the case of Germany. This is surprising at first glance
because prior assessments imply a dominance of risk management disclosure in German MDA
sections. Yet, we note that German sample firms report most on risk management disclosure in
absolute terms compared to their counterparts.
Panel D reports that qualitative risk disclosure is significantly more prevalent than quantitative
disclosure for all subsamples.5 This finding supports H1(c). Despite significant cross-country
differences in the absolute quantity of both qualitative and quantitative risk disclosure, the average
proportion of quantitative risk disclosure (ranging from 17.20 to 18.86 percent) seems similar in all
subsamples.
5

Detailed data presented in Appendix A reveal that this holds true for all individual risk categories, with
quantitative disclosure most prevalent in the financial category for all subsamples.

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Attributes of Corporate Risk Disclosure: An International Investigation

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TABLE 3
Individual-Country Results for Total Risk Disclosure, Location, Nature of Reference to Risk,
Type of Information, Time Frame, and Risk Category
Panel A: Total Risk Disclosure (TOT)

TOTMean
TOTStd. Dev.
TOTPercentage
TOTTotal

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

308.20
124.36
100.00%
12,328

151.13
77.25
100.00%
6,045

156.85
63.46
100.00%
6,274

196.85
80.25
100.00%
7,874

Panel B: LocationManagement Report (MDA) versus Notes (NFS) Risk Disclosure

MDAMean
MDAStd. Dev.
MDAPercentage
MDATotal
NFSMean
NFSStd. Dev.
NFSPercentage
NFSTotal
Significance t-test

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

213.23
91.52
69.18%
8,529
94.98
50.18
30.82%
3,799
0.000***

105.00
58.75
69.48%
4,200
46.13
26.96
30.52%
1,845
0.000***

86.45
43.11
55.12%
3,458
70.40
32.60
44.88%
2,816
0.022**

122.65
68.21
62.31%
4,906
74.20
38.42
37.69%
2,968
0.000***

Panel C: Nature of Reference to RiskRisk Source (RS) versus Risk Management (RM)
Disclosure

RSMean
RSStd. Dev.
RSPercentage
RSTotal
RMMean
RMStd. Dev.
RMPercentage
RMTotal
Significance t-test

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

218.20
89.56
70.80%
8,728
90.00
45.10
29.20%
3,600
0.000***

96.15
48.82
63.62%
3,846
54.98
33.18
36.38%
2,199
0.000***

71.93
32.01
45.86%
2,877
84.93
36.19
54.14%
3,397
0.002***

102.20
41.43
51.92%
4,088
94.65
44.84
48.08%
3,786
0.142

Panel D: Type of InformationQualitative (QL) versus Quantitative (QT) Risk Disclosure

QLMean
QLStd. Dev.
QLPercentage
QLTotal

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

253.58
104.29
82.28%
10,143

125.13
61.59
82.80%
5,005

127.63
52.06
81.37%
5,105

161.13
71.16
81.85%
6,445

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TABLE 3 (continued)

QTMean
QTStd. Dev.
QTPercentage
QTTotal
Significance t-test

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

54.63
34.05
17.72%
2,185
0.000***

26.00
20.24
17.20%
1,040
0.000***

29.23
16.99
18.63%
1,169
0.000***

35.73
15.65
18.15%
1,429
0.000***

Panel E: Time FrameForward-Looking (FW) versus Past, Present, or Non-Time-Specific

(PPNTS) Risk Disclosure

PPNTSMean
PPNTSStd. Dev.
PPNTSPercentage
PPNTSTotal
FWMean
FWStd. Dev.
FWPercentage
FWTotal
Significance t-test

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

250.00
99.65
81.12%
10,000
58.20
32.49
18.88%
2,328
0.000***

134.73
70.08
89.15%
5,389
16.40
13.07
10.85%
656
0.000***

128.18
53.42
81.72%
5,127
28.68
17.00
18.28%
1,147
0.000***

174.55
72.47
88.67%
6,982
22.30
12.72
11.33%
892
0.000***

Panel F: Risk CategoriesFinancial (FIN) versus Nonfinancial (NFIN) Risk Disclosure

FINMean
FINStd. Dev.
FINPercentage
FINTotal
NFIN-MARMean
NFIN-MARStd. Dev.
NFIN-MARPercentage
NFIN-MARTotal
NFIN-NATMean
NFIN-NATStd. Dev.
NFIN-NATPercentage
NFIN-NATTotal
NFIN-OPEMean
NFIN-OPEStd. Dev.
NFIN-OPEPercentage
NFIN-OPETotal
NFIN-REGMean
NFIN-REGStd. Dev.
NFIN-REGPercentage
NFIN-REGTotal

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

127.05
64.04
41.22%
5,082
76.03
39.30
24.67%
3,041
3.23
5.30
1.05%
129
64.80
37.37
21.03%
2,592
37.10
21.89
12.04%
1,484

76.95
40.37
50.92%
3,078
33.98
22.58
22.48%
1,359
1.93
3.80
1.27%
77
24.55
20.63
16.24%
982
13.73
8.09
9.08%
549

75.40
29.15
48.09%
3,016
27.45
20.71
17.45%
1,098
6.30
10.02
4.05%
252
26.88
16.57
17.31%
1,075
20.83
11.33
13.10%
833

88.08
34.59
44.74%
3,523
49.58
30.10
25.18%
1,983
4.65
5.78
2.36%
186
41.53
26.71
21.09%
1,661
13.03
10.36
6.62%
521

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TABLE 3 (continued)

FIN versus NFIN

Significance t-test

U.S.
(n = 40)

Canada
(n = 40)

U.K.
(n = 40)

Germany
(n = 40)

54.10
(0.000)***

2.78
(0.589)

6.05
(0.378)

20.70
(0.033)**

**, *** Indicate statistical significance at 5% and 1%, respectively.

Percentage refers to the percentage of risk disclosure quantity (as measured by sentences) in each dimension as denoted
in Table 2.
Risk disclosure categories as denoted in Table 2, with TOT = Total risk disclosure: MDA = Management report; NFS =
Notes to financial statements; RS = Risk source; RM = Risk management; QL = Qualitative; QT = Quantitative; PPNTS
= Past, present, or non-time-specific; FW = Forward-looking; FIN = Financial; NFIN = Nonfinancial; MAR = Market;
NAT = Nature; OPE = Operations; REG = Regulation.

Panel E refers to the time frame of risk disclosure. Consistent with prior studies, results imply
that past, present, and non-time-specific risk disclosure outweighs forward-looking disclosure for
all subsamples, thereby supporting H1(d).6 Again, the U.S. sample firms seem to outperform their
counterparts in terms of quantity of forward-looking risk disclosure. In terms of relative emphasis
put on forward-looking risk disclosure, however, the U.K. sample reveals almost equal weight (18
versus 19 percent).
Panel F of Table 3 indicates that risk disclosure is most prevalent in the financial category,
followed by market risk, operations risk, regulatory risk, and nature risk categories. This pattern
holds true for all subsamples. The dominance of financial risk disclosure is consistent with the
regulatory focus.7 However, the individual-country mean difference tests imply that risk disclosure
quantity in the nonfinancial categories even outweighs financial risk disclosure in the U.S. and
Germany. Therefore, H1(e) is only supported for Canada and the U.K., where sample firms seem to
report on financial and nonfinancial risk in a rather balanced way.
Pair-wise, cross-country comparisons presented in Table 4 indicate significant mean
differences in terms of disclosure quantity in total risk disclosure and all disclosure categories
investigated. Results support H2 for neither total risk disclosure nor for individual categories. In
general, they imply that the U.S. sample dominates every other subsample in terms of disclosure
quantity; the German sample outweighs the remaining ones, while the Canadian and U.K. samples
show least differences across the board.
There are only two single categories in which the U.S. subsample does not significantly
dominate its counterparts. Unlike all other categories, the U.K., not the U.S., sample provides most
nature risk disclosure on average in both absolute and relative terms. The difference between the
U.S. and U.K. samples is slightly significant (p = 0.085). Moreover, there is no significant
difference in the U.S. samples disclosure quantity on risk management compared to both European
counterparts.
Contrasting the two European subsamples, both required to present financial statements under
IFRS, does not yield a significant difference in risk disclosure quantity in the notes. Yet, overall
6

As with quantitative risk disclosure, detailed data presented in Appendix A reveal that this holds true for all
individual risk categories.
More detailed data presented in Appendix A imply some within-category heterogeneity across the subsamples.
Notably in the financial category, all subsamples put most emphasis on disclosure on valuation uncertainties,
followed by credit risk disclosure in the North American samples and liquidity risk disclosure in the European
samples. Across all subsamples, however, we find that output disclosure prevails in the market risk category and
compliance disclosure prevails in the regulatory risk category.

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TABLE 4
Cross-Country Results for Total Risk Disclosure, Location, Nature of Reference to Risk,
Type of Information, Time Frame, and Risk Category
U.S. versus
Canada
TOT

157.07
(0.000)***
MDA
108.23
(0.000)***
NFS
48.85
(0.000)***
RS
122.05
(0.000)***
RM
35.02
(0.000)***
QL
128.45
(0.000)***
QT
28.63
(0.000)***
PPNTS
115.27
(0.000)***
FW
41.80
(0.000)***
FIN
50.10
(0.000)***
NFINMAR 42.05
(0.000)***
NFINNAT
1.30
(0.211)
NFINOPE
40.25
(0.000)***
NFINREG
23.37
(0.000)***

U.S. versus
U.K.

U.S. versus
Germany

151.35
111.35
(0.000)***
(0.000)***
126.77
90.58
(0.000)***
(0.000)***
24.58
20.78
(0.011)**
(0.041)**
146.27
116.00
(0.000)***
(0.000)***
5.07
4.65
(0.580)
(0.645)
125.95
92.45
(0.000)***
(0.000)***
25.40
18.90
(0.000)***
(0.002)***
121.82
75.45
(0.000)***
(0.000)***
29.53
35.90
(0.000)***
(0.000)***
51.65
38.97
(0.000)***
(0.001)***
48.68
26.45
(0.000)***
(0.001)***
3.08
1.42
(0.085)*
(0.254)
37.93
23.27
(0.000)***
(0.002)***
16.28
24.07
(0.000)***
(0.000)***

Canada versus Canada versus

U.K.
Germany
5.73
(0.718)
18.55
(0.111)
24.28
(0.009)***
24.22
(0.010)**
29.95
(0.002)***
2.50
(0.845)
3.23
(0.443)
6.55
(0.640)
12.28
(0.001)***
1.53
(0.847)
6.53
(0.177)
4.38
(0.011)**
2.33
(0.536)
7.01
(0.003)***

45.72
(0.011)**
17.65
(0.219)
28.07
(0.000)***
6.05
(0.552)
39.67
(0.000)***
36.00
(0.018)**
9.73
(0.019)**
39.82
(0.015)**
5.90
(0.044)**
11.13
(0.190)
15.60
(0.011)**
2.72
(0.015)**
16.98
(0.002)***
0.70
(0.737)

U.K. versus
Germany
40.00
(0.016)**
36.20
(0.006)***
3.80
(0.635)
30.27
(0.000)***
9.72
(0.289)
33.50
(0.019)**
6.50
(0.049)**
46.37
(0.002)***
6.37
(0.061)*
12.68
(0.081)*
22.13
(0.000)***
1.65
(0.356)
14.65
(0.005)***
7.80
(0.006)***

*, **, *** Indicate statistical significance at 10%, 5%, and 1%, respectively.
Risk disclosure categories as denoted in Table 2, with TOT = Total risk disclosure: MDA = Management report; NFS =
Notes to financial statements; RS = Risk source; RM = Risk management; QL = Qualitative; QT = Quantitative; PPNTS
= Past, present, or non-time-specific; FW = Forward-looking; FIN = Financial; NFIN = Nonfinancial; MAR = Market;
NAT = Nature; OPE = Operations; REG = Regulation.

German sample firms provide significantly more risk disclosure, driven by more disclosure in the
management report. The U.K. sample outweighs the German only in the quantity of forwardlooking (p = 0.081) and regulatory risk disclosure (p = 0.006).
Comparing each of the two European samples with the Canadian one reveals that Canadian
sample firms provide less risk disclosure in general. The Canadian sample does not significantly
outweigh the German sample in any single category and only provides more risk source disclosure
when compared to the U.K. sample (p = 0.010). Interestingly, evidence implies that the risk
disclosure quantity of Canadian sample firms not only falls back compared to the U.S. but also, and
to a lesser extent, compared to the European counterparts.
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Attributes of Corporate Risk Disclosure: An International Investigation

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Regression Results
Table 5 reports the linear multiple regression results on H3, testing the association between risk
disclosure quantity and the level of firm risk for total risk disclosure and along three major
dimensions.8
Results of the pooled regressions are presented in Panel A. For total risk disclosure, the
coefficients on all five proxies for firm risk are positive but none is statistically significant. For some
individual categories, however, results do not support H3. BET, as a proxy for systematic firm risk,
and LEV, as a proxy for financial risk, are significantly associated with risk disclosure quantity.
Notably, LEV is significant for the financial and notes categories. Albeit high for nonfinancial risk
disclosure, the coefficients on all of our proxies for nonfinancial risk are insignificant. Except for
the insignificant country dummies for the U.K. and for Germany in the regression on risk
management disclosure, the coefficients for all country dummy variables are always negative and
significant at the 1 percent level. This indicates the general dominance of the U.S. subsample in
terms of risk disclosure quantity and coincides with the descriptive results. Consistent with prior
studies, firm size is strongly associated with risk disclosure quantity (Linsley and Shrives 2006;
Koshini and Mohobbot 2007; Lajili and Zeghal 2005b). Evidence for a size effect generally holds
true across our individual-country results.
Panels B to E report mixed evidence on the relationship of risk disclosure quantity and the level
of firm risk on the individual-country level. Generally, results imply an association of risk
disclosure quantity and the level of firm risk in each country. Only the U.K. sample lacks significant
coefficients for our risk proxies in total risk disclosure (Linsley and Shrives 2006). Within each
subsample, the significant coefficients are rather consistent for individual categories of risk
disclosure. Across subsamples, however, the variables with significant coefficients and the signs of
significant coefficients vary. For both North American subsamples, results imply a positive
association. Coefficients indicate that LEV for the financial category and SFR for the nonfinancial
category (for the U.S. subsample) or mainly BET (for the Canadian subsample) are positively
related with risk disclosure quantity. This does not hold true for both European subsamples, where
the only statistically significant coefficients (on BET for the U.K. subsample or LEV for the German
subsample) have a negative sign. While not supporting H3, individual-country results seem to
coincide with a disclosure motive in the U.S. and Canada, but a concealing motive particularly in
Germany.
Overall, size and our risk proxies seem to explain a relatively high proportion of the variation
of risk disclosure quantity as shown by the R2 values, ranging from 56.6 to 33.1 percent for the
pooled sample (with country dummies) and from 42.7 to 33.8 percent for total risk disclosure on the
individual-country level.
VII. DISCUSSION AND CONCLUSIONS
This paper is the first comprehensive international risk disclosure study. Based on a content
analysis of annual reports of a matched-sample of 160 listed firms from the U.S., Canada, the U.K.,
and Germany, we provide threefold evidence on the individual-country and the cross-country levels.
As a consistent pattern across our sample countries, we find a prevalence of risk disclosure
located in the management report (compared to those in the notes), of qualitative (compared to
quantitative), and of past, present, and non-time-specific (compared to forward-looking) risk
disclosure. The latter suggests that all regimes are struggling with quantifying risk exposure and
8

We eliminated three observations for the U.S. and four for Canada because data on the independent variables were
not available or not reliable.

Journal of International Accounting Research

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TABLE 5
Regression Results on the Association of Risk Disclosure Quantity
and the Level of Firm Risk
Panel A: Pooled Regressions with Country Dummies for Canada, the U.K., and Germany
Included (n = 153)
TOT
FIN
NFIN
MDA
NFS
RS
RM

Intercept

SIZ

BET

LEV

DOL

SFR

MC

Adj. R2

F-statistic

3.141***
3.286***
2.164**
2.154**
3.229***
1.310
5.116***

6.600***
6.356***
4.952***
5.000***
5.949***
4.828***
7.670***

1.385
0.906
1.353
1.736*
0.035
1.752*
0.513

1.459
1.908*
0.724
0.827
1.807*
2.108**
0.151

0.478
0.584
0.267
0.138
0.825
0.806
0.709

1.189
0.367
1.465
1.382
0.222
1.293
0.754

0.233
0.087
0.405
0.302
0.011
0.773
0.622

0.480
0.374
0.410
0.424
0.331
0.566
0.365

0.000
0.000
0.000
0.000
0.000
0.000
0.000

Panel B: U.S.Individual Country Regressions (n = 37)

TOT
FIN
NFIN
MDA
NFS
RS
RM

Intercept

SIZ

BET

LEV

DOL

SFR

MC

Adj. R2

F-statistic

1.645
2.968***
0.591
0.876
3.002***
0.924
3.190***

2.273**
3.566***
1.129
1.370
3.731***
1.497
3.793***

0.320
0.163
0.358
0.872
1.244
0.694
0.803

3.379***
5.517***
1.553
1.950*
5.773***
2.439**
5.049***

1.052
0.064
1.450
1.615
0.830
1.365
0.109

1.713*
0.663
2.304**
1.830*
0.735
1.339
2.276**

0.748
0.153
1.146
1.038
0.302
0.925
0.050

0.427
0.641
0.188
0.250
0.670
0.266
0.656

0.001
0.000
0.053
0.020
0.000
0.016
0.000

Panel C: CanadaIndividual Country Regressions (n = 36)

TOT
FIN
NFIN
MDA
NFS
RS
RM

Intercept

SIZ

BET

LEV

DOL

SFR

MC

Adj. R2

F-statistic

2.732**
2.347**
2.455**
2.876***
1.285
2.729**
2.261**

3.487***
3.075***
3.064***
3.533***
1.944*
3.534***
2.823***

2.156**
1.826*
1.060*
1.923*
1.777*
1.907*
2.091**

1.049
1.562
0.359
0.235
2.413**
1.837*
0.116

0.338
0.868
0.206
0.200
1.387
0.164
0.906

1.220
0.996
1.142
1.435
0.239
1.563
0.579

0.612
0.468
0.601
0.349
0.940
0.507
0.636

0.364
0.341
0.256
0.304
0.351
0.428
0.191

0.003
0.005
0.021
0.009
0.004
0.000
0.054

Panel D: U.K.Individual Country Regressions (n = 40)

TOT
FIN
NFIN
MDA
NFS
RS
RM

Intercept

SIZ

BET

LEV

DOL

SFR

MC

Adj. R2

F-statistic

3.119***
3.766***
1.869
1.924*
3.193***
2.314**
3.297***

4.241***
5.247***
2.476**
2.706**
4.205***
3.186***
4.444***

1.418
2.500**
0.297
0.325
2.276**
0.678
1.850*

1.180
1.176
0.834
0.677
1.286
0.708
1.406

1.049
0.192
0.180
1.452
0.131
0.154
0.467

0.671
0.903
0.355
0.160
1.068
1.269
0.016

0.778
0.036
0.924
1.256
0.367
0.800
0.612

0.338
0.450
0.122
0.152
0.338
0.225
0.339

0.003
0.000
0.110
0.072
0.003
0.014
0.002

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TABLE 5 (continued)
Panel E: GermanyIndividual Country Regression (n = 40)
TOT
FIN
NFIN
MDA
NFS
RS
RM

Intercept

SIZ

BET

LEV

DOL

SFR

MC

Adj. R2

F-statistic

2.708**
0.859
2.757
2.393
0.749
2.319**
2.474**

4.347***
2.317**
3.885***
3.498***
1.782*
4.026***
3.699***

0.027
1.031
0.628
0.608
0.978
0.053
0.001

2.545**
1.801*
2.108**
1.848*
1.381
2.556**
1.988*

0.529
0.837
0.152
0.265
0.488
0.262
0.655

0.826
0.816
0.521
0.428
0.737
1.258
0.262

0.571
1.226
0.022
0.172
0.203
0.909
0.144

0.374
0.222
0.260
0.210
0.125
0.331
0.291

0.001
0.024
0.012
0.029
0.105
0.003
0.007

*, **, *** Indicate statistical significance at 10%, 5%, and 1%, respectively.
Risk disclosure categories as denoted in Table 2, with TOT = Total risk disclosure: MDA = Management report; NFS =
Notes to financial statements; FIN = Financial; NFIN = Nonfinancial; RS = Risk source; RM = Risk management.
Independent Variables:
SIZ = natural logarithm of total assets at the end of the fiscal year;
BET = beta factor;
LEV = leverage at the end of the fiscal year;
DOL = degree of operating leverage;
SFR = share of foreign revenue; and
MC = dummy variable that equals 1 if the firm has a major customer, and 0 otherwise.

management and forward-looking information, thereby coinciding with prior findings on the
individual-country level (Vielmeyer 2004; Lajili and Zeghal 2005a; Linsley and Shrives 2006). The
result could also be related to managerial discretion in withholding quantitative or forward-looking
information, even when available, in order to avoid possibly unfavorable consequences of
disclosure, e.g., commercial drawback or litigation (Jorgensen and Kirschenheiter 2003; Dobler
2008). Further results indicate differences in the emphasis put on disclosure on risk sources
(compared to risk management disclosure), and in categories of risk referred to. Coinciding with the
regulatory focus, disclosure on financial risk is more prevalent than disclosure on other categories
across all countries.
Descriptive cross-country results suggest considerable heterogeneity in risk disclosure
quantity. The U.S. firms generally provide most risk disclosure. This finding is consistent with
strict and detailed disclosure regulation particularly on financial, market, and regulatory risk as, e.g.,
imposed by FRR 48 and the Sarbanes-Oxley Act of 2002. A notable exception concerns nature risk
disclosure, where U.K. firms dominate. This coincides with findings on environmental disclosure in
U.S. and U.K. annual reports by Holland and Foo (2003) who partly attribute the difference to
regulatory and cultural discrepancy. Following the U.S., German firms appear to rank second in
terms of disclosure quantity. This is surprising because Germany is the only sample country
referred to as a code law country, and one would have expected less differences between the
common law countries. Results seem to coincide with the stimulating role of the advanced German
standard GAS 5 (Kajuter 2004; Vielmeyer 2004), while a similar risk disclosure quantity in the
notes of U.K. and German firms seems consistent with some degree of risk disclosure harmony
under IFRS.9 However, cross-country variation in risk disclosure attributes can only be partly
9

It should be noted that this study does not address risk disclosure harmonization (as a process), while allowing for
inferences on harmony (as a state). Since note disclosure can be enforced rather thoroughly by auditors and
enforcement institutions in both the U.K. and Germany, first-year adoption effects of IFRS seem less likely in risk
disclosure than in earnings management.

Journal of International Accounting Research

Volume 10, No. 2, 2011

Dobler, Lajili, and Zeghal

18

linked to domestic disclosure regulation and tradition. This suggests that risk disclosure incentives
play an important role.
Regression results consistently reveal a size effect and evidence that risk disclosure quantity is
associated with our proxies for the level of firm risk. Cross-country regressions generally imply that
riskier firms, particularly as measured by the beta factor and leverage, disclose more.
Individual-country results are mixed. Consistent with a disclosure motive, we find that risk
disclosure quantity is positively related with firm-specific risk proxies in the North American
settings. Results for Germany, however, show a significant negative association between risk
disclosure quantity and leverage. While providing a considerable level of risk disclosure compared
to Canada and the U.K., this result suggests that in Germany, riskier firms provide less risk
disclosure and, to that extent, a concealing motive prevails. One explanation can be linked to the
still heavy reliance on bank debt financing in Germany. Thus, banks play the role of insiders that
can access internal information and be inclined to conceal firm risk exposure from outsiders to
protect private control benefits (Leuz and Wustemann 2004; Dittmann et al. 2010).
While extending empirical knowledge and adding to prior risk disclosure research, our study is
subject to some limitations and yields implications for future research. First, the predominance of
qualitative disclosure led us to focus on analyses of the quantity of risk disclosure. This may not
capture quality, particularly given the properties of risk disclosure (Botosan 2004). Future research
could try to gauge risk exposure by using risk proxies and relating those measures, e.g., to risk
management actions and impact on firm value. Also, future research could try to address the quality
of risk disclosure by testing its information content for market pricing incremental to accounting
numbers. Second, while large compared to previous risk disclosure studies, sample size is limited
due to our matching procedures, with Canada and Germany being limiting factors. Thus, sample
firms may not be representative for the total population of firms in the manufacturing sector in each
country, and cross-country results should be understood within the context of similar size and
profitability of matched sample firms. We also tied the analysis to four countries with advanced risk
disclosure regulations. Future research could choose additional countries and particularly include
countries with weak risk disclosure regulations, e.g., to further address the impact of disclosure
regulation and institutional settings. Furthermore, corporate governance variables, such as board
composition, independence, and ownership or voting control, could be introduced in future
international studies on risk disclosure. Third, we did not analyze risk disclosure over time. Thus,
we cannot assess the development or harmonization of risk disclosure (as a process). Longitudinal
studies could investigate effects of the financial crises on attributes of risk disclosure or to what
extent the adoption of IFRS, or of the IFRS Practice Statement Management Commentary,
promotes risk disclosure harmonization internationally. Despite these limitations, this study is a
primary step into understanding the global context for debating risk disclosure regulation and
practice among national and international regulatory bodies as they try to harmonize their efforts.

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Journal of International Accounting Research

Volume 10, No. 2, 2011

U.S.
RS
549
FW 50
QT 229
RM 497
FW 15
QT 154
%
8.48%
Canada
RS
309
FW 24
QT 94
RM 350
FW 16
QT 99
%
10.90%
U.K.
RS
170
FW 10
QT 71
RM 187
FW 3
QT 46
%
5.69%

Journal of International Accounting Research

Volume 10, No. 2, 2011
590
88
145
547
60
40
18.12%

189
195
4
2
28
69
267
152
12
7
35
33
7.27%
5.53%

271
87
112
448
74
108
11.46%

768
73
85
328
18
20
18.13%

552
1,305
219
332
115
150
373
886
41
112
145
131
7.50%
17.77%

Valuation

397
179
244
22
10
67
130
89
76
231
97
175
5
2
19
32
19
55
10.39%
4.57%
6.93%

237
365
27
40
57
218
195
123
10
3
38
44
3.50%
3.96%

Interest
Credit Currency Rate Liquidity

FIN
Output
Market

ReDisassources Weather ters

NAT

105
12
23
116
24
7
3.52%

217
19
21
95
8
19
5.16%
483
124
114
394
168
33
13.98%

34
3
6
167
50
12
3.20%

1
208
150
0
24
25
1
47
25
1
122
136
0
16
9
0
22
24
0.03%
5.46%
4.73%

844
313
160
59
262
42
312
297
56
20
76
113
9.38%
4.95%

403
27
51
7
97
7
396
7
65
2
19
0
12.74% 0.54%

316
70
45
7
16
8
154
9
15
2
8
0
7.78% 1.31%

(continued on next page)

101
22
12
156
51
9
4.10%

234
44
40
132
13
15
6.05%

659
1,067
131
149
317
15
41
75
0
167
284
2
28
59
0
25
13
6.70%
10.96% 1.08%

Politics

REG

Logistics/
Organ- Person- Produc- Compliization
nel
tion
ance

OPE

2
19
232
56
0
1
45
11
1
4
95
1
8
22
384
146
2
0
144
18
1
2
30
9
0.16% 0.65%
9.82%
3.22%

696
17
40
109
3
0
60
1
8
351
8
10
61
0
0
25
0
1
17.32% 0.41% 0.83%

616
1,975
19
34
62
110
423
4
4
3
55
126
2
1
6
133
317
5
1
8
20
50
1
1
0
24
40
2
0
1
6.08%
18.59% 0.19% 0.28% 0.57%

Input
Market

MAR

Detailed Coding Results

APPENDIX A

Attributes of Corporate Risk Disclosure: An International Investigation

21

429
72
231
595
56
214
13.00%

Output
Market

NAT

0
0
0
0
0
0
0.00%

REG

Logistics/
Organ- Person- Produc- Compliization
nel
tion
ance Politics

OPE

12
310
122
255
256
77
0
36
19
37
39
17
0
73
10
14
35
6
21
354
282
338
161
27
1
46
16
49
9
8
1
31
43
16
3
0
0.42%
8.43%
5.13%
7.53%
5.30% 1.32%

ReDisassources Weather ters

823
337
1,010
26
115
28
147
0
148
57
218
3
738
217
419
126
47
29
76
10
38
11
32
10
19.82%
7.04%
18.15%
1.93%

Input
Market

MAR

Variables (apart from %) Risk disclosure quantity (as measured by sentences) per category as denoted in Table 2, % = Percentages of risk disclosure quantity of risk disclosure per
categories relative to total risk disclosure in each country.
Risk disclosure categories as denoted in Table 2, with RS = Risk Source; RM = Risk Management; FW = Forward-looking; QT = Quantitative; FIN = Financial; MAR = Market;
NAT = Nature; OPE = Operations; REG = Regulation.

Germany
RS
114
172
145
FW
5
7
13
QT 31
41
70
RM
161
220
126
FW
3
5
2
QT 46
28
19
%
3.49%
4.98%
3.44%

Interest
ValuaCredit Currency Rate Liquidity tion

FIN

APPENDIX A (continued)

22
Dobler, Lajili, and Zeghal

Journal of International Accounting Research

Volume 10, No. 2, 2011

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