Taxonomy of Risk Disclosure : Evidences from an Emerging Economy

Purpose: In this study, an attempt is made to explore the trend in risk disclosure among Indian companies. The purpose of this paper is to present taxonomy of risk disclosure by examining a sample of non-financial companies listed on the Bombay Stock Exchange. Research Methodology/Design: For this research, a sample of 205 non-financial companies were derived from Bombay Stock Exchange (BSE top 500) listed companies. Annual reports of these companies were downloaded from their websites during the period 2010-2018. A total of 1845 annual reports are scanned through software Nvivo- 12 to find different types of risk words. To get sentence count manual method is used. Based on the product or service sampled companies were also classified in 13 sectors viz. Agri-Business, Automobile, Business Solution & Consultancy, Construction & Real estate, Defence Services, Electronics, Entertainment, Personal Products, Pharmaceuticals, Transportation, Machinery, Process, and Power sector. Major Findings: It is observed that the process sector is the largest sector with 67 companies. The overall risk disclosure trend in annual reports during the period 2010–2018 is computed. The risk disclosure trend in Indian companies is increasing gradually from the year 2010 to 2013. However, a drastic increase in disclosure is observed from 2016 onwards. The risk disclosure index (RDI) is also computed. It is also observed that process sector companies have higher RDI as compared to other sector companies. Taxonomy of risk disclosure is also proposed. Research Implications: The implication of the findings is that companies that meaningfully increase their voluntary disclosures in this field may be treated more favorably in the stock market. The findings will also help Indian securities market regulators to identify the need for more comprehensive risk disclosures for companies. This could lead regulators into investigating the case for developing and introducing prescriptive regulations regarding minimum disclosures to be made by listed companies. The Risk Disclosure Index is unique because it is the first aggregate indicator that captures not only the number of risk items disclosed, but also the type of items disclosed. In addition, this research sets the foundation for research on risk disclosure that is important and unexplored area in developing country like India