Determinants of the quality of COVID-19-related risk disclosures: Evidence from Finnish listed firms
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School of Business |
Master's thesis
Authors
Date
2023
Department
Major/Subject
Mcode
Degree programme
Accounting
Language
en
Pages
112+1
Series
Abstract
This study examines the determinants behind the quality of risk disclosures related to the coronavirus (COVID-19) pandemic. Particularly, the focus is on the level of risks posed by the pandemic and their impact on the quality of related risk reporting. The study uses data from a sample of Finnish listed firms and examines their risk reviews following the outbreak of the COVID-19 crisis. Two quality features of COVID-19-related risk disclosures – quantity and distinctiveness – are measured using manual content analysis, and their association with the risks posed by the pandemic to firms’ business operations is tested using multiple regression analysis. The effect of both actualised and future risks of COVID-19 as well as the overall risk levels of companies on the quality of pandemic-related risk disclosures is examined. The empirical results demonstrate that risk disclosures related to COVID-19 exhibit higher quality when a firm’s actualised pandemic-related risks as perceived by the market are at a higher level. In contrast, the higher risks of the pandemic materialised in accounting terms do not lead to an improvement in the quality of the related risk information. The results of the study also indicate that the quality of pandemic-related risk reporting does not reflect the magnitude of the future risks posed by COVID-19 nor the overall risk level of a firm. In addition, the results indicate that much of the variation in the quality of COVID-19-related risk disclosures is driven by firm-related incentives other than the risks themselves. Particularly, firms appear to align their pandemic-related risk reporting with the aggregate risk reporting in terms of reporting quality. The findings of this study suggest that firms are likely to adapt their risk reporting as a result of an unpredictable and extreme event in their operating environment. However, the risk disclosures regarding the new risk type appear to address in a firm-specific manner mostly only past risks perceived by the market during the reporting period. The findings have practical implications for international standard-setters and national regulatory bodies looking for ways to encourage firms to regularly update their risk disclosures.Description
Thesis advisor
Ikäheimo, SeppoKeywords
risk disclosure, risk reporting, COVID-19, coronavirus, pandemic