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August 2010, Vol.6, No.8 (Serial No.

63)

Journal of Modern Accounting and Auditing, ISSN 1548-6583, USA

Annual risk reporting of listed companies in Malaysia


Ruhaya Atan1, Enny Nurdin Sutan Maruhun1, Wan Hasnah Wan Abdul Kadir2, Kamaruzaman Jusoff3
(1. Faculty of Accountancy, Accounting Research Institute,Universiti Teknologi MARA, Shah Alam 40450, Selangor, Malaysia;
2. Finance Department, Universiti Teknologi MARA, Segamat 85009, Johor, Malaysia;
3. Faculty of Forestry, Universiti Putra Malaysia, Serdang 43400, Selangor, Malaysia)

Abstract: This study examines risk reporting in annual reports of Malaysian listed companies. The
mandatory and voluntary disclosures of risk information are analyzed and the authors examine whether a
relationship exists between company size, leverage, and industry type and risk disclosure levels. 150 listed
companies from five industries are selected as sample. Content analysis and risk disclosure index of dichotomous
measurement are used in data collection. Overall the results indicate that level of risk information disclosed in the
annual reports is still minimal. OLS (Ordinary least squares) regression analysis indicates that the level of risk
information disclosure is positively associated with size and not with leverage. However, a mixed result has been
found for industry type; where only property industry shows a significant relationship with level of risk disclosure,
and not for the other industries. This study contributes to financial reporting literature in relation to risk reporting,
particularly the practice of Malaysian companies. Findings from this study are also useful to regulators and
accounting standard setting body to assess the level of compliance to regulations and standards relating to risk
reporting by these companies. More studies are required to further understand the importance of risk information
disclosure, such as risk disclosure within specific industry, cross-country studies and usefulness of risk
information disclosure from the stakeholders perspectives.
Key words: risk; reporting; annual reports; listed companies; risk

1. Introduction
High-profile corporate failure caused by accounting misdeed around the globe including Malaysia has
increased concerns on the reliability and transparency of the information reported in the companys most
influential report, which is corporate annual report. Stakeholders required information on the risks affecting a
companys strategies and the actions management plans to capitalize on emerging opportunities as well as to
minimize the risk of failures are disclosed (Beretta & Bozzolan, 2004). Risk disclosure is a focal issue of
corporate communication but managers have been seen to omit this information in their reports (Thuelin,
Henneron & Touron, 2006). One common criticism of financial statements is that not sufficient disclosures about
risks and uncertainties (Schrand & Elliot, 1998). Companies are being less transparent if reporting their risks.
Risk information disclosures in annual reports become more crucial due to current trend of accounting
Ruhaya Atan, assoc prof, Ph.D. in accounting and finance (The University of Birmingham, UK), Faculty of Accountancy,
Accounting Research Institute, Universiti Teknologi MARA; research fields: financial accounting & reporting.
Enny Nurdin Sutan Maruhun, lecturer, Faculty of Accounting, Universiti Teknologi MARA; research field: financial reporting.
Wan Hasnah Wan Abdul Kadir, lecturer, Master in business administration (Phillits University, Oklahoma, USA), Finance
Department, Universiti Teknologi MARA; research field: finance.
Corresponding Author: Kamaruzaman Jusoff, professor, Ph.D. in forest engineering survey (Cranfield University), Universiti
Putra Malaysia; research field: forest surveying.
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Annual risk reporting of listed companies in Malaysia

irregularities involving high-profile companies such as Enron, Parmalat, WorldCom, and Xerox just to name a few.
Accounting irregularities has given an adverse impact on the trustworthiness of companys annual report. The
inclinations of accounting irregularities were also observed in Malaysia; Perwaja Steel, Sime Darby, Technology
Resources Industries Berhad, Malaysia Airline, and Transmile are few examples. People have lost confidence on the
reliability of information disclosed in annual report, therefore, companies need to regain peoples confidence through
greater disclosure and improve transparency that enable the users make appropriate judgments about a companys
performance (Linsley & Shrives, 2005). Good financial statements should include a clear identification of the major
risks facing the business and the steps that have been taken to deal with those risks (Anonymous, 2005).
Risk reporting and disclosures have become main concern of many international accounting standard-setters
and regulators. In October 2005, The International Accounting Standard Board (IASB) issued discussion paper
title Management Commentary (MC). The main objectives of this discussion paper are to enable investors to: (i)
interpret and assess the related financial statements in the context of the environment in which they operates: (ii)
assess what management views as the most important issues facing the entity and how it intends to manage those
issues; and (iii) assess the strategies adopted by the entity and the likelihood that those strategies will be
successful. Reporting on the key risks and uncertainties facing an entity, together with the commentary on
managements approach to them is a critical aspect of MC. IASB has also issued two standards, IAS 1:
Presentation of Financial Statement and IAS 32: Financial Instruments: Presentation, that require the company to
provide information on principal uncertainties faced and disclosure of information for some specific risks.
In the USA, legislator through the Sarbanes-Oxley Act (2002) emphasized disclosures on risks for quoted
companies. Companies are required to enhance financial disclosures of all material off-balance-sheet transaction,
arrangements, obligations and relationship between the issuer with others entities or persons that may have a
material current or future effect on financial conditions, changes in financial conditions, results of operations,
liquidity, etc. (Thuelin, et al., 2006).
Malaysian listed companies need to report risks following requirements by the regulators and accounting
body. Bursa Malaysia, Securities Commission (SC) and Malaysian Accounting Standard Board (MASB) are
bodies responsible in regulating financial reporting of Malaysian listed companies. Rule 15.26(b) of Listing
Requirements issues by Bursa Malaysia requires a listed company to ensure that its board of directors makes a
statement in its annual report about the state of internal control of the company. The board should disclose in the
internal control statement whether there is an ongoing process of identifying, evaluating and managing the
significant risks faced by them.
Over the last 30 years, number of researches conducted on corporate reporting has been increasing and
majority of these studies focus mainly in general perspective of corporate disclosure (Linsley, Shrives & Crumpton,
2006). Researchers are concentrating on disclosure issues such as corporate and social responsibility and voluntary
disclosure of company. Limited numbers of studies are conducted to examine risk and risk management disclosure
in companys annual report. Previous literatures have shown that risk information is very important and disclosure
of this information in companys annual report is beneficial especially for users who depend on this report to make
decision. Majority of risk disclosure studies were conducted in countries such as United Kingdom, United States,
Canada, Italy and others. Unfortunately, only a handful of research that dealt with risk disclosure by Malaysian
companies were conducted, mainly as part of the general voluntary disclosure studies.
As such, this study aims to examine the current practice of Malaysian companies in reporting risk
information in annual report. Specifically, the objectives of this study are to determine:
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Annual risk reporting of listed companies in Malaysia

(1) The level of risk information disclosures by Malaysian listed companies;


(2) The level of mandatory and voluntary risk information disclosed;
(3) Whether company characteristics such as size, leverage and industry have any influence on the level of
risk information disclosed by company.
The findings of this study are deemed to be useful for regulators and standard setters in evaluating the
adequacy of disclosure of risk information by public companies. It will also create awareness among companies
on the types and amount of risk information that they could disclose in their corporate annual reports.

2. Literature review
2.1 Risk reporting
Literature on risk reporting is somewhat limited because most of the studies focus on issues such as corporate
social responsibility disclosures and general disclosures. Stanton and Stanton (2002) conducted a survey
reviewing 70 corporate disclosures studies published in the period 1990 to 2000. They found that none of the
research was conducted specifically examines risk disclosures. One of the reasons highlighted for limited number
of research conducted in this area is the difficulty in defining risk. Risk is used very broadly in everyday
language, no standard definition of risk is generally accepted and components of risks differ from one company to
another. Risk is subjective and it depends on the specific company business environment. Generally risk is defined
as the uncertainty associated with both potential gain and loss (Solomon, Solomon & Norton, 2000). In another
study, Linsley & Shrives (2006) defined risk disclosure as any information discloses to reader on any
opportunities, prospect, hazard, harm, threat or exposure that has already impacted or may give an impact upon
the company or management in future.
Disclosing and communicating risk to users of the financial report is very important. Risk and risk
management disclosures are potentially useful to company stakeholders because it will reduce information
asymmetries, promote transparency, and improve disclosure quality (Lajili & Zeghal, 2005). Currently limited
amount of risk information is disclosed in the annual report of company. Lack of information on risks facing
companies is one of the main weaknesses in the accounting information disclosed by firms (Cabedo & Tirado,
2004). Firms do not provide sufficient information on risk and risk management. It is argued by many researchers
that information disclosed is too brief, not sufficiently forward looking and insufficient for decision-making
purposes (Abraham and Cox, 2007; Beretta and Bozzolan, 2004). In order to promote greater disclosure on risk
and risk management, accounting bodies are taking responsibility in oversight of risk reporting and ensuring firms
collect and disseminate a greater amount of risk information (Abraham & Cox, 2007).
2.2 Mandatory and voluntary information disclosure
Information disclosure has been defined as the communication of information, quantitative and qualitative by
firms whether statutorily required or voluntary that facilitates the users in making informed economics decisions
(Gray, Meek & Roberts, 1995). In general, accounting information disclosed by a company can be categorized as
mandatory and voluntary information disclosure. Statutory disclosure is legal and regulatory requirements made
mandatory by regulatory agencies specifying the types of information firms have to disclose, either in the annual
reports or in other documents. If companies choose to disclose information in excess of the mandatory requirements,
which include accounting and other information that managers deem relevant to the needs of various stakeholders,
then, the excess information is considered as the voluntary disclosure (Gray, et al., 1995).

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It is argued that companies are already providing some risk information subject to mandatory disclosures for
instance information about the use of derivatives instruments. However, the disclosure risk information is limited
to specific areas. The regulations impose on certain types of risk concern primarily on financial instrument use
and risk exposure to financial and market risk (Lajili & Zeghal, 2005). Research by Linsley, et al. (2006) shows
that companies have already provided some risk information through their adherence to accounting standards;
however, the difficulty with such standards cause them to provide risk disclosures only in discrete areas. The
annual report does not present a coherent discussion of the risks that challenge the company and the actions taken
by the directors to manage those risks. As such, what is needed is a coherent risk statement discussing material
risks that the company confronted with and how those risks are managed (Linsley & Shrives, 2005).
Dissatisfaction with mandatory financial reporting has led investors, financial markets and other key
stakeholders to demand companies voluntarily provide more comprehensive information on their long-term
strategies and performance (Boesso & Kumar, 2007). The decision to provide voluntary information is made for a
variety of reasons that vary across companies, countries and stock market and, considerations often dominate the
disclosure decision (Roberts, 1991). The company voluntarily discloses information in order to facilitate clarity
and understanding to investors. Lack of clear, precise and accurate information can lead to under-pricing of a
firms stock. Therefore, disclosing reliable and precise information can reduce information risks about a
companys stock which in turn reduces the required return. As such, firms voluntarily disclose information in an
effort to shape the perceptions of market participants and other stakeholders and, hence to benefit from improved
terms of exchange with these parties (Graham, Harvey & Rajgopal, 2005).
2.3 Corporate characteristics affecting risk information disclosure
2.3.1 Size
Previous studies on general and risk disclosures reporting often found that a positive relationship exists
between the size of the company and the number of disclosures in annual reports (see Linsley & Shrives, 2006;
Linsley, et al., 2006; Abd. Ghaffar, Ibrahim & Zain, 2001; Berreta & Bozzolan, 2004; Hashim & Saleh, 2007;
Mohd Ghazali & Weetman, 2006). It is argued that larger firms are motivated to provide higher financial
disclosures as compared to smaller firms due to several reasons such as firstly, larger firms are likely to have
broad-based ownership, which would require more comprehensive and detailed disclosure to meet the information
needs of diverse groups of investors. Secondly, large firms are generally well established and they can afford to
provide detailed comprehensive information without the fear of their information being misinterpreted, which could
result in negative investors reaction (Abd. Ghaffar, et al., 2001). Agency costs are higher for larger firms because
shareholders are widespread and as a result, additional disclosure might reduce this cost. On the other hand, large
firms might be motivated to reduce the level of disclosure, more specifically the level of forward looking
information to avoid litigation costs (Aljifri & Hussainey, 2007). Size is a strong driver of risk disclosures; Berreta
& Bozzolan (2004) confirmed the size risk disclosure association for sample of Italian companies. Linsley &
Shrives (2006) also found a positive correlation between the volume of risk disclosures and company size.
2.3.2 Leverage
Jensen & Meckling (1976) argued that highly leveraged firms incur more monitoring costs and they seek to
reduce these costs by disclosing more information to satisfy the need of creditors. Findings from previous studies
indicated that there is a positive association between gearing and level of firm disclosures. Firms with higher debts
are generally under greater scrutiny by creditors to ensure that the firms are not violating debt covenants as such
this scrutiny would result in disclosure of more comprehensive information (Abd. Ghaffar, et al., 2001). Aljifri &
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Annual risk reporting of listed companies in Malaysia

Hussainey (2007) found that firms with high debt ratio (leverage) disclose more information to reduce their
finance costs. Abraham & Cox (2007) studied the determinants of narrative risk information in UK FTSE 100
annual reports and found a weak positive association between leverage and the amount of disclosure.
A different scenario was observed in Linsley & Shrives (2005) where they found no significant association to
exist between the number of risk disclosures and the level of company leverage. Meanwhile, Hashim & Saleh
(2007) found that the leverage has not appeared to be significant in explaining voluntary annual report disclosure.
As such, there were mixed results on the association between the two variables.
2.3.3 Industry
Type of industry as the determinant of corporate disclosure has been investigated in prior studies. Berretta &
Bozzolan (2004) argued that in risk disclosure study, the industrys effect on the level of disclosures could be
further emphasized because the technological and market constraints exerted by the competitive, industrial
environment on business models significantly influence the risk profile of companies. Hackston & Milne (1996)
found a significant association between the amount of disclosure and industry type for the New Zealand
companies. Boesso & Kumar (2007) who examined the factors affecting the voluntary disclosure practises of
companies in Italy and in the United States found a weak association between level of disclosure and industry.
However, previous studies have also found that type of industry is insignificantly associated with level of
disclosure, such as Aljifri & Hussainey (2007), and Berretta & Bozzolan (2004).

3. Research methodology
3.1 Research framework and hypotheses
The review of literature indicates that various factors have influenced the level of disclosures of information
by companies. Three factors have been identified to influence the level of risk information disclosure. It is
hypothesized that the company size, type of industry and leverage influence the level of mandatory and voluntary
disclosure of risk information.
Size

Leverage

Mandatory and voluntary


risk information disclosure

Type of industry
Figure 1

Research framework and hypotheses

Based on Figure 1, three hypotheses were constructed. They are:


H1: There is a positive association between company size and the level of total risk information disclosures
in annual reports.
H2: There is a positive association between company leverage and the level of total risk information
disclosures in annual reports.
H3: The level of risk disclosures in the annual report of companies is related to the industry in which the
company is operating.

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3.2 Sampling method


This study examines the level of risk information disclosures in corporate annual reports of Malaysian
companies with financial year ended 2006 (being the most recent year when the study took place). Companies
listed on the main board of Bursa Malaysia constitute the population. Banking, insurance trust, closed-end funds
and securities were excluded because they are subjected to different rules of disclosure in other industry sector. In
study of risk disclosures within annual reports for a sample according to Linsley & Shrives (2005), the exclusion
of the financial sectors in the sample of risk disclosure study is due to the nature of the financial firms that are
significantly different from non-financial firms. This will have a considerable impact upon the types of risk
disclosures they make. From the total number of companies of 615 as at December 31, 2007, the number was
reduced to 559.
Companies were then segregated according to type of industry. From ten industries listed, only five industries were
selected because they have the largest numbers of companies representing them. Other industries were not represented
by sufficient number of companies, for instance, mining sector was only represented by one company and only five
companies represented the hotel sector. According to Sekaran (2003) where samples are broken into sub samples, a
minimum sample size of 30 for each category is necessary in order to generalize the findings to the population with
confidence. The sample companies were selected from these five industries namely construction, consumer product,
industrial product, property, trading and services. Thirty companies were selected from each industry and systematic
sampling has been employed in order to select them. Hence, the sample totalled 150 companies.
3.3 Content analysis
Risk disclosures in the annual reports were analysed using content analysis; a method of codifying the
text (or content) of a piece of writing into various groups or categories depending on the selected criteria
(Krippendoff, 1980). Content analysis is the technique that is widely discussed and used in previous studies for
research on corporate disclosures (Lajili & Zeghal, 2005; Milne & Adler, 1999; Linsley & Shrives, 2005). A
dichotomous technique is used to give scores to the amount of disclosure made; where an item scores 1 if it is
disclosed and 0 if it is not disclosed regardless of its importance. This is commonly known as unweighted index,
and used in this study to avoid subjectivity inherent in weighting the information. Gray, et al. (1995) explained
that the unweighted scoring approach assumes that each item of disclosure is equally important because
companies that are better at disclosing important items are also better at disclosing less important items. Thus,
firms would score the same regardless of whether items are weighted or unweighted.
The main drawback of content analysis is the subjectivity of the technique itself, hence the instruments used
in content analysis can be questioned for its reliability. In overcoming this issue, a test-retest approach was
adopted as recommended by Krippendoff (1980).
3.4 Risk disclosure index
For the purpose of measuring the level of risk information disclosed by each company, a risk disclosure index
is developed. Disclosure index in this study is developed based on previous literature (e.g., Gray, et al., 1995;
Botosan, 1997; Hashim & Saleh, 2007; Abd. Ghaffar, et al., 2001).
Items of risk information included in the risk disclosure index were gathered from financial reporting
standards, Bursa Malaysia Listing Requirements and previous literatures (Linsey & Shrives 2005; Botoson, 1997).
The list consists of 29 items of mandatory disclosure and 34 items of voluntary risk disclosures that totalled to 63
items. Risk disclosure index (RD Score) for each company is calculated as:

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RD Score =

Score earned by a company


Maximum score (63 points)

One of the objectives of this study is to examine the possible association between the level of risk
information disclosures and firm characteristics; size, leverage and industry.
Previous literatures on risk information disclosures have used many proxies to measure the size of a company
such as turnover, total assets, employee numbers and market capitalization. Hackston & Milne (1996) argued that
there is no theoretical reason to favour one measure over another. Linsley, et al. (2006) used total assets and
market capitalization in examining risk disclosure practices within annual reports of Canadian and UK banks.
Other studies on risk information disclosure measured size by the natural logarithm of company turnover
(Abraham & Cox, 2007; Linsley & Shrives, 2006). As such, this study used the natural logarithm of company
turnover in 2006 as a proxy to measure firms size. The data are logged to minimise the impact of extreme values
(Abraham & Cox, 2007).
Leverage is also measured in several ways as evidenced in prior studies on financial disclosures. The most
common measurements used to measure leverage is gearing ratio defined as total debts divided by total assets
(Abd. Ghaffar, et al., 2001; Aljifri & Hussainey, 2007; Abraham & Cox, 2007; Abdelghany, 2005). Mohd Ghazali
and Weetman (2006) and Hashim & Saleh (2007) in their study measured leverage using debt ratio which was
defined as long-term loans to shareholders fund. This study measures leverage using proxy of debt ratio, defined
by long-term loans to shareholders fund.
Many empirical studies have demonstrated that the level of firm disclosure is highly influenced by industry
(for example, Berreta & Bozzolan, 2004). Hackston & Milne (1996) argued that companies, whose economic
activities modify the environment for instance extractive industries, are more likely to disclose information about
their environmental impacts than are companies in other industries. As such it is also expected that certain
industry would disclose risk information better than others. Manaf, Atan & Mohamed (2006) in their studies on
environmental disclosures, however, found that there is no significant difference in the mean ranks between
different industrial sectors.

4. Results
4.1 Descriptive analysis
Table 1 shows the descriptive statistics of the sample companies. On average, the level of disclosure of total
risk information (RD Score1) is 44.24%. This means that on average, companies disclosed less than fifty percent
of the risk information to the users of the annual reports. This percentage is relatively low considering the
importance of risk information for the users decision-making. The highest percentage of disclosure for this
category is 66.67% and the lowest is 26.98%.
Mandatory risk information disclosure (RD Score2) is expected to be high due to legal implication for
non-compliance. Table 1 shows a higher mean (59.9%) compared to voluntary risk information disclosures. The
highest level of mandatory disclosure is 82.76% and only three companies have achieved 80% and above. They
are Gamuda Berhad, UEM Builders Berhad and Sime Darby Berhad. On the other hand, voluntary risk
information disclosures (RD Score3) have a mean disclosure of 30.86%.

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Table 1
RD Score1

Descriptive statistics of the sample companies


RD Score2

RD Score3

Size

Leverage

Mean

44.244

59.908

30.862

8.424

0.7377

Median

44.440

62.070

29.41

8.358

0.901

Maximum

66.67

82.76

64.71

10.305

1.187

Minimum

26.98

24.14

8.82

5.483

.000

Mode

39.68

58.62

35.29

6.974

.000

Std. Dev.

7.949

11.596

8.792

0.652

0.353

Skewness

0.360

-0.316

0.636

-0.353

-1.452

Kurtosis

-0.341

-0.207

1.299

2.439

0.505

0.002

0.004

0.002

K-S significance
Observations

150

150

150

150

150

Notes: RD Score1 is defined as total risk information disclosure index, RD Score2 is defined as mandatory risk information
disclosure index, RD Score3 is defined as voluntary risk information disclosure index, Size is measured by Natural Logarithm of
Total Sales (for year 2006), and Leverage is measured by Natural Logarithm of the ratio of long-term debts to total equity. Scores are
expressed in percentages.
Source: Descriptive statistics of 150 Malaysian listed companies for year 2006

4.2 Regression analysis


Table 2 shows the multiple regression results of the three independent variables (size of company, leverage
and type of industry) against the dependent variable (the level of risk information disclosure). The result reveals
that the level of risk information disclosures in annual report of sample companies as measured by the three
dependent variables RD Score1, RD Score2 and RD Score3 are associated with independent variables of Size,
Leverage and Industry.
RD Score1 is defined as total risk information disclosure index, RD Score2 is defined as total mandatory risk
information disclosure index, RD Score3 is defined as total voluntary risk information disclosure index, Size is
measured by Natural Logarithm of Total Sales (for year 2006), and Leverage is measured by Natural Logarithm of
the ratio of long-term debts to total equity. IND1 is 1 if the firm in construction sector and 0 if otherwise, IND2 is
1 if the firm in consumer product sector and 0 if otherwise, IND3 is 1 if the firm in properties sector and 0 if
otherwise and IND4 is 1 if the firm in industrial product sector and 0 if otherwise. T-Statistics are reported in
parentheses.
At 0.00 significant levels, size of company has significant relationship with the total risk information
disclosure, as well as mandatory and voluntary risk information disclosure. Leverage and industry type also
contributed to the level of risk information disclosure but were not significant, except for property sector (p< 0.01).
Adjusted R-squared ranges from 0.070 (p<0.05) for mandatory disclosure to 0.192 (p<0.01) for total risk
information disclosures. This indicates that 7% until 19% variance in the level of risk information disclosures has
been significantly explained by the three independent variables. Values of adjusted R-squared in this study are
relatively low, indicating that there are other variables that may explain the variation in risk information
disclosures. Similarly, Hashim & Salleh (2007) also found low adjusted R-squared in study of voluntary
disclosures where the adjusted R-squared ranges from 4.1% to 17.1%.

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Annual risk reporting of listed companies in Malaysia

Table 2

Regression analysis
Dependent variables

RD Score1

RD Score2

RD Score3

0.224

0.107

0.193

Adjusted R

0.192

0.070

0.160

F-Statistic

6.899

2.855

5.715

Significance

0.000***

0.012**

0.000***

No. of observations

150

150

150

Independent Variables:
Size

Leverage

IND1

IND2

IND3

IND4

0.000***

0.000***

0.000***

(6.257)

(3.849)

(5.693)

0.928

0.884

0.970

(0.90)

(0.147)

(-0.038)

0.453

0.669

0.470

(0.752)

(0.429)

(0.725)

0.202

0.613

0.137

(1.281)

(0.506)

(1.496)

0.015*

0.067*

0.073*

(2.460)

(1.849)

(1.803)

0.481

0.952

0.221

(0.706)

(-0.061)

(1.230)

Notes: ***Significant at 0.01; **Significant at 0.05; and *Significant at 0.10.

5. Discussion and implications


This study found that Malaysian public companies disclosed less than fifty percent (44.24%) of the risk
information to the users of the annual reports. Considering the importance of risk information in economic
decision making, this level of disclosure is relatively low. The highest percentage of disclosure is 66.67% which is
about two thirds of the whole items of risk information.
Though it is expected that companies would disclose higher level of mandatory information, the mean
disclosure level (59.9% and mode of 58.62%) does not reflect so. This means that the level of compliance of
mandatory requirements is still not in place for many companies. Majority of companies disclosed minimal level
of voluntary risk information. However, it signifies that voluntary risk information disclosure has been cultivated
but still at formative stage.
The overall findings reveal that the level of risk information disclosures in annual report of Malaysian
companies is fairly low and this is consistent with other studies on corporate disclosure practised by Malaysian
companies. Study by Hashim & Saleh (2007) on the voluntary annual reports disclosures by Malaysian
Multinational Corporations (MNCs) found that the level of voluntary disclosure was relatively low although it
was expected that these MNCs would have more voluntary disclosure in overcoming the diversity demand of
information. Other studies of disclosure by Malaysian companies (for example by Haron, Yahya, Manasseh &
Ismail, 2006; Zain & Janggu, 2006; Manaf, et al., 2006; Atan, 1998; Atan & Arshad, 2006; Arshad, Atan & Darus,
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2008; Arshad, Taylor, Atan, & Darus, 2009) also obtained similar results of low level of information disclosure.
The result of multiple regressions indicates that to a certain extent disclosure of risk information is influenced
by the size of company, its leverage and type of industry, though there could be other variables that would explain
the level of risk disclosure. Size is found to be significantly related to level of risk information disclosures in
annual reports. Thus, hypotheses H1 is substantiated. The finding on size variable is consistent with other studies
on corporate disclosures and risk disclosures such as by Linsley & Shrives (2005); Beretta & Bozzolan (2004);
Abraham & Cox (2007) and Zain & Janggu (2006).
Leverage, on the other hand, is not found to significantly influence the level of risk information disclosed.
Therefore, hypotheses H2 is not statistically supported. The same finding has been found in various studies such
as Adbelghany (2005) who studied the disclosure of market risk or accounting measures of risk. The finding was
also confirmed by Linsley & Shrives (2006) where they found no correlation between gearing ratio and level of
risk disclosures.
Mixed result was found on the effect of industries to the level of risk information disclosures. Only one
industry (properties at 10% significant level) shows a positive association with level of risk information disclosed,
suggested that the level of risk information disclosed by properties sector is higher compared to trading and
services, which is the base industry. The other three industries demonstrate no significant association. Therefore,
hypothesis H3 is only partially supported. This is consistent with the result of a study on environmental
disclosures of environmentally sensitive companies by Manaf, et al. (2006).

6. Conclusion and future studies


This study has addressed the research objectives set forth in this study on the extent of risk information
disclosure and whether such disclosure is associated with company size, type of industry or leverage. Based on the
low level of risk disclosure found in this study, Malaysian public companies are considered as less transparent
when reporting about their business entities. The sample of 150 companies is sufficient to generalise this to all
companies listed on the main board of Bursa Malaysia.
It is recommended that the regulatory bodies and accounting standard setter play an active role in enforcing
or oversighting the practice of the companies to ensure that they at least comply with the mandatory requirements
of risk disclosure, as well as encouraging them to provide more information related to their risks. This is due to
the fact that extent of mandatory risk disclosure is at unsatisfactory level.
It is also important to comprehensively investigate the factors influencing the level of disclosure of risk
information. This refers to the fact that the multiple regression analysis explained only 19% of the variance
associated with the level of risk disclosure. Any company would be subjected to some kind of risk that could
impact its business, irrespective of size or industry. As such, the importance of risk information should not be
underestimated because it affects stakeholders decision. Therefore, it is also recommended for future studies to
investigate from the perspective of the stakeholders, the various risk information that they considered important
and useful for their purposes. More studies are required to further understand the importance of risk information
disclosure, such as risk disclosure within specific industry. A cross-country study is also possible to identify
whether the findings are different or do they represent a universal phenomenon. Finally, since the economic
environment is ever evolving, a longitudinal study is more appropriate to capture the trends of disclosure practice
and details of this study.

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(Edited by Linda and Mary)

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