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Corporate Governance, Risk Disclosure Practices, and Market Liquidity: Comparative Evidence from the UK and Italy

Research output: Contribution to journalArticle

  • Tamer Elshandidy
  • Lorenzo Neri
Original languageEnglish
Pages (from-to)331-356
JournalCorporate Governance: An International Review
Issue number4
DatePublished - 2015


Manuscript Type: Empirical
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.

    Research areas

  • Automated Textual Content Analysis; Corporate Governance; Mandatory and Voluntary Risk Disclosure; Usefulness of Risk Disclosure



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