*A Framework for the Evaluation of Risk Disclosure

• In Event: Risk and Related-Party Disclosures

Abstract

An increased interest in the evaluation of risk disclosure over the last decade has generated a myriad of evaluation frameworks largely based on some form of content analysis. While these frameworks provide a basis for the analysis of different aspects of the content, quality, and quantity of risk disclosure, a comprehensive framework for the evaluation of all three components is still missing.

Within this paper, I introduce a comprehensive framework for the evaluation of risk disclosure. In contrast to other frameworks, this evaluation framework is based on the qualitative characteristics of the joint IASB/FASB framework. In addition, it uses a new approach for unitizing, coding and simplifying the data based on four elementary propositions of risk disclosure.

I apply the framework on 2009 risk reports of German DAX 30 companies to explore its strength and weaknesses. I test for the interdependence of disclosure content, quality and quantity. In addition, I test whether any of these factors is related to the firm’s risk position, as measured by analysts’ forecast error. This exploratory study builds the basis for creating a standard evaluation model which will be applied to a larger sample of risk reports.

Author

• Michael Hofmann, EBS Universitaet für Wirtschaft und Recht - Finance, Accounting and Real Estate Department - Wiesbaden, Germany