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Corporate governance, risk disclosure practices, and market liquidity: Comparative evidence from the UK and Italy

Corporate governance, risk disclosure practices, and market liquidity: Comparative evidence from the UK and Italy

Neri, Lorenzo ORCID: 0000-0001-6627-0386 and Elshandidy, Tamer (2015) Corporate governance, risk disclosure practices, and market liquidity: Comparative evidence from the UK and Italy. Corporate Governance: An International Review, 23 (4). pp. 331-356. ISSN 0964-8410 (Print), 1467-8683 (Online) (doi:

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Research Question/Issue:
This paper examines the influence of corporate governance on risk disclosure practices in the UK and Italy and also studies the impact of those practices on market liquidity.

Research Findings/Insights:
We find that governance factors principally influence the decisions of UK (Italian) firms over whether to exhibit risk information voluntarily (mandatorily) in their annual report narratives. When we distinguish between firms with strong and weak governance (in terms of board efficiency) in each country, we find that the factors that affect mandatory and voluntary risk disclosure appear to be driven more by strongly governed firms in both countries. Furthermore, strongly governed firms in the UK tend to provide more meaningful risk information to their investors than weakly governed firms. In Italy, however, we find that strongly rather than weakly governed firms exhibiting risk information voluntarily rather than mandatorily improves market liquidity significantly.

Theoretical/Academic Implications:
This paper emphasizes the importance of distinguishing between mandatory and voluntary risk disclosure when studying the impact of corporate governance. Our findings differ across strongly and weakly governed firms, in terms of both the factors that influence risk disclosure practices and the exact informativeness of those practices.

Practitioner/Policy Implications:
The results support the current regulatory trend in risk reporting within the UK that emphasizes the importance of directors and encourages rather than mandates risk disclosure. However, the results generally signal a need for further improvements in the Italian context. Our evidence also supports the value of the confidence in the UK governance system, compared to that in Italy, which motivates British firms to provide highly informative risk information more often than Italian firms.

Item Type: Article
Additional Information: This is the peer reviewed version of above fully cited article and may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. FIRST published: 12 December 2014.
Uncontrolled Keywords: Corporate governance, Automated textual content analysis, Mandatory and voluntary risk disclosure, Usefulness of risk disclosure
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business > Department of Accounting & Finance
Last Modified: 29 May 2019 08:58
Selected for GREAT 2016: GREAT a
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: GREAT 1

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