Value Relevance of Value-at-Risk Disclosure
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.
Accounting | Portfolio and Security Analysis
Corporate Reporting and Disclosure
Review of Quantitative Finance and Accounting
LIM, Chee Yeow and TAN, Patricia Mui Siang.
Value Relevance of Value-at-Risk Disclosure. (2007). Review of Quantitative Finance and Accounting. 29, (4), 353-370. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/586