Value Relevance of Value-at-Risk Disclosure

Publication Type

Journal Article

Publication Date

2007

Abstract

The SEC issued FRR No. 48 in 1997 to enhance public disclosure of firms’ exposures to market risk. We examine whether the quantitative value-at-risk (VAR) estimates disclosed by 81 non-financial firms during the period 1997–2002 are value-relevant using the earnings-returns relation. The empirical results indicate that high VAR is associated with weaker earnings-returns relation. Further analysis shows that VAR is positively and significantly associated with future stock return volatility. Our evidence suggests that investors perceive the earnings of firms with substantial market risk exposure to be less persistent, and adjust the future abnormal earnings for the higher risk exposure. Thus, this results in a lower expected rate of return.

Discipline

Accounting | Portfolio and Security Analysis

Research Areas

Corporate Reporting and Disclosure

Publication

Review of Quantitative Finance and Accounting

Volume

29

Issue

4

First Page

353

Last Page

370

ISSN

0924-865X

Identifier

10.1007/s11156-007-0038-7

Publisher

Springer

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