Risk reporting of Japanese companies and its association with corporate characteristics

TLDR

The study examines how corporate characteristics relate to the level of risk reporting and assesses the effect of regulatory guidelines on risk disclosure in annual reports. The authors randomly selected 100 non‑financial companies from the first section of the Tokyo Stock Exchange to conduct the analysis. They find that company size is positively associated with the number of risk disclosures, other characteristics show no significant link, most firms provide descriptive rather than quantified risk information, and overall risk reporting volume increased after the Financial Service Agency’s regulatory guidelines.

Abstract

This study aims to examine the relationship between corporate characteristics and level of risk reporting and to reveal the impact of issuing regulatory guidelines on risk reporting in annual reports. One hundred non-financial companies were randomly selected from the first section of the Tokyo Stock Exchange. Firstly, we find that, consistent with prior research, the size of the company and the number of risk disclosures are positively correlated. On the other hand, no significant relationship exists between the number of risk disclosures and other corporate characteristics. Secondly, the findings show that most of the companies disclose descriptive risk information but are reluctant to quantify risk. It also shows that the level of risk reporting has increased, at least in quantity, in annual reports after the issuance of regulatory guidelines on risk reporting by the Financial Service Agency.