Corporate Risk Disclosure Consistency or Disparity?
Analysis of Listed Japanese and North American Manufacturing Companies
A company’s annual report offers a description of that organization’s business and the risks it faces. Risk disclosures are an important part of that report and should provide external stakeholders with valuable information about significant risks.
AIG is pleased to sponsor this paper from Dr. Paul L. Walker of the St. John’s University, Center for Excellence in Enterprise Risk Management. The research performed by Professor Walker compares the risks disclosed by manufacturing companies listed on the New York Stock Exchange and the Tokyo Stock Exchange, while also examining motivating factors for such disclosure.
Listed risks and patterns were analyzed and five key findings are evident:
- The most frequently listed risks by each exchange are different
- The most frequently listed risks are not necessarily the most important risks, particularly among NYSE companies
- The average numbers of risk factors and the average number of pages dedicated to risk factors in the annual report are higher among NYSE companies than those of TSE companies
- Broader categorization of risks highlights major differences in companies’ views of their top risks between TSE and NYSE exchanges
- Potential internal and external reasons for the patterns of differences noted include ERM practices and maturity, involvement of board members, level of risk awareness and knowledge, regulatory and litigation differences and investor expectations
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