Newcastle University Business School

Event Item

Risk disclosure narratives in UK annual reports and their utility to financial analysts

Date/Time: Thursday 7 December, 15:00 - 16:30

Venue: Room 1.14, Newcastle University Business School

Speaker: Dr Doris Xin, Newcastle University Business School

The aim of this paper is to provide a detailed and forensic examination of how narrative risk disclosures aid market participants (financial analysts) in their assessment of future corporate performance (earnings). Our investigation entails a two-fold disaggregation of narrative risk disclosures on the basis both of their temporal focus (i.e. backward-looking, forward-looking) and of their business focus (financial, strategic, operational). While analysts appear to gain utility from both backward-looking and forward-looking risk disclosures, operational risk disclosures are more valuable when referring to prior periods while strategic risk disclosures are more valuable when related to future periods. Financial risk disclosures retain a significant role regardless of their temporal focus but appear to be most useful in cases where they convey bad news. We tentatively draw recommendations from our results regarding guidance to managers on the most appropriate focus for different types of narrative risk disclosures.