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The communicative effectiveness of market risk disclosures in the annual reports of financial firms

The communicative effectiveness of market risk disclosures in the annual reports of financial firms
The communicative effectiveness of market risk disclosures in the annual reports of financial firms

The general aim of this research is to examine the effectiveness of financial firms involved in the financial derivatives activities in communicating information on market risk in their annual reports. The thesis consists of five studies. The first study examines the readability level of market risk narrative by using the Flesch Reading Ease formula. As compared to other narratives, i.e. the chairman's letter to the shareholders and other narratives from the same section of MD&A, the market risk narrative is the most difficult to read. In investigating the relationship between readability score and the characteristics of the financial firms, i.e. the positions in dealing with derivatives as measured by notional amount and the first language of the country where the financial firm is based, the study shows that there is no significant relationship.

The second study seeks evidence on the understandability of the textual narrative of market risk information by using the Cloze Procedure. As compared to other narrative from the same section of MD&A, the market risk narrative is more difficult to understand. In examining the relationship between Cloze Procedure and Flesch Reading Ease scores, the study finds no significant relationship.

The third study is to determine whether there is a performance advantage when financial firms include graphical displays to disclose market risk profiles in their annual reports. The results from the experiment demonstrate the superiority of graphical market risk disclosure format over purely narrative on four factors, predictive accuracy, confidence level of the prediction, task easiness and report comprehensibility.

In the fourth study, an extract from the annual report of one of the firms in an experimental study to investigate the effectiveness of a graphic versus a tabular presentation of quantitative information on market risk. The results of the study show differences between the two groups of subjects in both the mean predicted level of market risk, and in the variance of the predicted distribution. Subjects in the group receiving information in a graphical form are more similar in their prediction than the group receiving information in a tabular form.

University of Southampton
Yahya, Sofri B
Yahya, Sofri B

Yahya, Sofri B (2002) The communicative effectiveness of market risk disclosures in the annual reports of financial firms. University of Southampton, Doctoral Thesis.

Record type: Thesis (Doctoral)

Abstract

The general aim of this research is to examine the effectiveness of financial firms involved in the financial derivatives activities in communicating information on market risk in their annual reports. The thesis consists of five studies. The first study examines the readability level of market risk narrative by using the Flesch Reading Ease formula. As compared to other narratives, i.e. the chairman's letter to the shareholders and other narratives from the same section of MD&A, the market risk narrative is the most difficult to read. In investigating the relationship between readability score and the characteristics of the financial firms, i.e. the positions in dealing with derivatives as measured by notional amount and the first language of the country where the financial firm is based, the study shows that there is no significant relationship.

The second study seeks evidence on the understandability of the textual narrative of market risk information by using the Cloze Procedure. As compared to other narrative from the same section of MD&A, the market risk narrative is more difficult to understand. In examining the relationship between Cloze Procedure and Flesch Reading Ease scores, the study finds no significant relationship.

The third study is to determine whether there is a performance advantage when financial firms include graphical displays to disclose market risk profiles in their annual reports. The results from the experiment demonstrate the superiority of graphical market risk disclosure format over purely narrative on four factors, predictive accuracy, confidence level of the prediction, task easiness and report comprehensibility.

In the fourth study, an extract from the annual report of one of the firms in an experimental study to investigate the effectiveness of a graphic versus a tabular presentation of quantitative information on market risk. The results of the study show differences between the two groups of subjects in both the mean predicted level of market risk, and in the variance of the predicted distribution. Subjects in the group receiving information in a graphical form are more similar in their prediction than the group receiving information in a tabular form.

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Published date: 2002

Identifiers

Local EPrints ID: 464802
URI: http://eprints.soton.ac.uk/id/eprint/464802
PURE UUID: bc089b42-12dd-4845-9bed-833ba304b9c2

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Date deposited: 05 Jul 2022 00:02
Last modified: 05 Jul 2022 00:02

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Contributors

Author: Sofri B Yahya

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