Over the years, contemporary companies (Zanda, 2012) have changed their external disclosure according to both the modifications of Italian civil law and the increasing importance of intangible assets that have produced a significant difference between market and book value. Authors have noted that, in recent years, especially in entities with a high incidence of immateriality, financial statements have become less significant. The phenomenon has increased since the Eighties; previously, in an industrial economy, characterized by the primacy of tangible assets, it was possible to identify a convergence of accounting estimates, as expressed in the financial statement, and market values, expressed by the stock markets. Many researchers have shown that this correspondence has, over the past few years, undergone a contraction (Brown, Lo, Lys, 1999; Jones, 2003; Lev, Zarowin, 1999). Nowadays, the balance sheets and its disclosure (Albertinazzi, 2002; Bandettini, 1999;Caratozzolo, 2006; Dezzani, Pisoni, Poddu, 2001; Viganò, 2007; Lacchini, 1994; Onida, 1974, Superti Furga, 1991; Zanda, 2007) are completed by the voluntary disclosure of companies with regards to corporate social responsibility, environment and intellectual capital (Bennet, Klinkers,James, 1999; Elkington, 1997; Higgins, 2002). Therefore, mandatory economic and financial information have been integrated by the civil law with other data regarding company management (Golinelli, 2000). In particular, article 2428 of the Civil Code has been modified within the provisions related to the management report. Introduction of the legislative decree no. 32 in 2007 led to the amendment of Article 2428 of the Civil Code (the body that regulates the preparation of Italian company documents in Italy), which, following the amendment, provides that "the budget must be accompanied by a directors' report containing a true, balanced and comprehensive overview of the company's situation and Business Systems Laboratory- Proceedings, the progress and results of management [...], as well as a description of the principal risks and uncertainties to which the company is exposed. The analysis [...] is consistent with the business entity and complexity of the firm's affairs and contains, to the extent necessary for an understanding of the company's situation and the progress and results of management, financial performance indicators and, where appropriate, non-financial information relating to the specific activity of the company, including information relating to the environment and staff". This modification enhances the disclosure towards corporate social responsibility. In this way, the board of directors have to provide stakeholders with information regarding environmental and human resources on six well defined categories (compulsory and voluntary) of analysis among which risk recognition and data (Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili, 2009). Management report needs to include information about all kind of companies risks and uncertainties (Bodnar, Consolandi, Gabbi, Jaiswal-Dale, 2013; Bonetti, Mattei, Palmucci, 2012; Elshandidy, Fraser, Hussainey, 2013; Miihkinen, 2013). Potential risks are, for example, specific and relevant risks of company, risks arising from occupational safety, risks by lawsuit regarding environment losses and eventually its insurance (Campbell, Chen, 2014; Campbell, Slack, 2011). In this way, the research aims to analyze the information system of companies listed on the Milan stock exchange, according to civil law, by the representation of risks, in order to match sustainable information and financial data. To this end, our research, carried out on a sample of 50 companies, aims to prove the current method of representing risk related information and the strategic value of the information, included in the annual reports. In particular, the sample selection is focused on companies listed for the first time in 2008 and under current quotation in 2013. The criteria in the companies' selection from Datastream database is the "sales net" and the "revenue" by including different sectors. For each company we have not only analyzed the mandatory annual documents but also all corporate documents: annual and consolidated financial statements, management reports and sustainability reports, if available, for the period 2008-2013. We focused our attention on the risk disclosure section to verify the presence, the level and the evolution of this kind of information. In this direction, initially, on the basis of the existing literature on risks (Beretta, Bozzolan, 2004, 2008; Deumes, 2008; Dobler, Lajili, Zéghal, 2011; Hill, Short, 2009; Linsley, Shrives, 2006; Miihkinen, 2013) and of the content of companies' documents, we have developed an appropriate coding scheme or "Grid Risk Report (GRR)" that lists broad content categories and different risk factors related to these categories. Secondly, we matched the words and sentences in the texts of the risk sections with the coding scheme (GRR) and identified for each text whether or not the risk factor was mentioned. An advantage of this manual approach over a computer-aided content analysis is that humans can provide a better opinion of the meaning of words and phrases within a context. One of the disadvantages is that a manual approach is less cost-effective and flexible. In addition, human raters can make mistakes and are prone to researcher bias (Krippendorff, 2004). Third, we built a risk disclosure scoring system consisting of one or more indicators. With the perspective of creating a full disclosure on companies' performance, by the representation of tangible and intangible assets, the objective of this paper is to present further suggestions for the balance sheet, the management and other reports and in order to fill information gaps that were found. Moreover, the empirical research aims at representing the most important indicators used by the companies to make risk disclosure with the perspective to extend the analysis in the international field. The research approach is based on a qualitative method with the use of secondary sources such as Datastream databases, papers and books (Yin, 1994). Starting from a single method approach (Myers, 2013), the research is developed according to the study of national and international literature. In this way, the research question is the following: starting from the empirical evidence about risks disclosure, which are the strong and weak points of current regulation? Can the proposition of the "Grid Report Risk" fill the management and the disclosure about companies' risks? What is the GRR and what is its mission?

Potential risks and disclosure: evidence from the Italian listed companies

RUSSO, Giuseppe;
2015-01-01

Abstract

Over the years, contemporary companies (Zanda, 2012) have changed their external disclosure according to both the modifications of Italian civil law and the increasing importance of intangible assets that have produced a significant difference between market and book value. Authors have noted that, in recent years, especially in entities with a high incidence of immateriality, financial statements have become less significant. The phenomenon has increased since the Eighties; previously, in an industrial economy, characterized by the primacy of tangible assets, it was possible to identify a convergence of accounting estimates, as expressed in the financial statement, and market values, expressed by the stock markets. Many researchers have shown that this correspondence has, over the past few years, undergone a contraction (Brown, Lo, Lys, 1999; Jones, 2003; Lev, Zarowin, 1999). Nowadays, the balance sheets and its disclosure (Albertinazzi, 2002; Bandettini, 1999;Caratozzolo, 2006; Dezzani, Pisoni, Poddu, 2001; Viganò, 2007; Lacchini, 1994; Onida, 1974, Superti Furga, 1991; Zanda, 2007) are completed by the voluntary disclosure of companies with regards to corporate social responsibility, environment and intellectual capital (Bennet, Klinkers,James, 1999; Elkington, 1997; Higgins, 2002). Therefore, mandatory economic and financial information have been integrated by the civil law with other data regarding company management (Golinelli, 2000). In particular, article 2428 of the Civil Code has been modified within the provisions related to the management report. Introduction of the legislative decree no. 32 in 2007 led to the amendment of Article 2428 of the Civil Code (the body that regulates the preparation of Italian company documents in Italy), which, following the amendment, provides that "the budget must be accompanied by a directors' report containing a true, balanced and comprehensive overview of the company's situation and Business Systems Laboratory- Proceedings, the progress and results of management [...], as well as a description of the principal risks and uncertainties to which the company is exposed. The analysis [...] is consistent with the business entity and complexity of the firm's affairs and contains, to the extent necessary for an understanding of the company's situation and the progress and results of management, financial performance indicators and, where appropriate, non-financial information relating to the specific activity of the company, including information relating to the environment and staff". This modification enhances the disclosure towards corporate social responsibility. In this way, the board of directors have to provide stakeholders with information regarding environmental and human resources on six well defined categories (compulsory and voluntary) of analysis among which risk recognition and data (Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili, 2009). Management report needs to include information about all kind of companies risks and uncertainties (Bodnar, Consolandi, Gabbi, Jaiswal-Dale, 2013; Bonetti, Mattei, Palmucci, 2012; Elshandidy, Fraser, Hussainey, 2013; Miihkinen, 2013). Potential risks are, for example, specific and relevant risks of company, risks arising from occupational safety, risks by lawsuit regarding environment losses and eventually its insurance (Campbell, Chen, 2014; Campbell, Slack, 2011). In this way, the research aims to analyze the information system of companies listed on the Milan stock exchange, according to civil law, by the representation of risks, in order to match sustainable information and financial data. To this end, our research, carried out on a sample of 50 companies, aims to prove the current method of representing risk related information and the strategic value of the information, included in the annual reports. In particular, the sample selection is focused on companies listed for the first time in 2008 and under current quotation in 2013. The criteria in the companies' selection from Datastream database is the "sales net" and the "revenue" by including different sectors. For each company we have not only analyzed the mandatory annual documents but also all corporate documents: annual and consolidated financial statements, management reports and sustainability reports, if available, for the period 2008-2013. We focused our attention on the risk disclosure section to verify the presence, the level and the evolution of this kind of information. In this direction, initially, on the basis of the existing literature on risks (Beretta, Bozzolan, 2004, 2008; Deumes, 2008; Dobler, Lajili, Zéghal, 2011; Hill, Short, 2009; Linsley, Shrives, 2006; Miihkinen, 2013) and of the content of companies' documents, we have developed an appropriate coding scheme or "Grid Risk Report (GRR)" that lists broad content categories and different risk factors related to these categories. Secondly, we matched the words and sentences in the texts of the risk sections with the coding scheme (GRR) and identified for each text whether or not the risk factor was mentioned. An advantage of this manual approach over a computer-aided content analysis is that humans can provide a better opinion of the meaning of words and phrases within a context. One of the disadvantages is that a manual approach is less cost-effective and flexible. In addition, human raters can make mistakes and are prone to researcher bias (Krippendorff, 2004). Third, we built a risk disclosure scoring system consisting of one or more indicators. With the perspective of creating a full disclosure on companies' performance, by the representation of tangible and intangible assets, the objective of this paper is to present further suggestions for the balance sheet, the management and other reports and in order to fill information gaps that were found. Moreover, the empirical research aims at representing the most important indicators used by the companies to make risk disclosure with the perspective to extend the analysis in the international field. The research approach is based on a qualitative method with the use of secondary sources such as Datastream databases, papers and books (Yin, 1994). Starting from a single method approach (Myers, 2013), the research is developed according to the study of national and international literature. In this way, the research question is the following: starting from the empirical evidence about risks disclosure, which are the strong and weak points of current regulation? Can the proposition of the "Grid Report Risk" fill the management and the disclosure about companies' risks? What is the GRR and what is its mission?
2015
9788890824227
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11580/58046
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