The Effect of Business Strategy on Risk Disclosure

Figures & data

Table 1. Descriptive statistics

	Full sample					Prospectors		Defenders		Analysers
	(N = 12,065)					(N = 656)		(N = 1,290)		(N = 10,119)
	Mean	St. dev.	p25	Median	p75	Mean	Median	Mean	Median	Mean	Median
RiskDisclosure	5.319	0.691	4.92	5.366	5.799	5.241	5.283	5.134	5.187	5.348	5.394
	252.593	161.394	137	214	330	236.828	197	208.163	179	259.279	220
BusinessStrategy	17.108	3.779	14	17	20	25.055	25	10.912	11	17.383	17
FirmSize	12.804	2.234	11.243	12.737	14.335	11.813	11.387	12.425	12.183	12.916	12.843
Leverage	0.185	0.386	0.006	0.069	0.221	0.102	0.009	0.228	0.078	0.185	0.072
Profitability	2.816	13.958	1.05	4.95	8.79	−11.727	−2.61	4.115	4.585	3.593	5.14
Loss	0.242	0.428	0	0	0	0.543	1	0.223	0	0.224	0
HistoricBeta	0.852	0.497	0.51	0.795	1.15	0.99	0.94	0.773	0.72	0.854	0.8
HistoricVolatility	0.407	0.18	0.276	0.368	0.496	0.522	0.492	0.381	0.349	0.403	0.366
TradingVolume	0.668	1.022	0.118	0.352	0.769	0.839	0.441	0.546	0.238	0.672	0.362
CrossListing	0.133	0.339	0	0	0	0.18	0	0.048	0	0.141	0

This table reports descriptive statistics for the dependent variable, RiskDisclosure; the independent variable of interest, BusinessStrategy; and the control variables employed in our main regression analysis. For RiskDisclosure, we report descriptive statistics for the natural logarithmic transformation and for the raw count values (in italics). See Appendix A for variable definitions.

Figure 1. Risk disclosure by industry over the sample period, 2005–2017

Table 2. Risk disclosure and business strategy by industry and year

Panel A: Risk disclosure and business strategy, by industry
Industry	Two-digit SIC codes	N	Risk Disclosure	Risk Disclosure (raw)	Business Strategy
Agriculture, forestry, and fishing	01–09	139	5.157	198.683	16.007
Mining	10–14	588	5.583	330.714	16.199
Construction	15–17	479	5.427	276.833	16.232
Manufacturing	20–39	5686	5.382	266.871	17.723
Transportations and communications services	40–48	883	5.517	304.853	16.320
Wholesale trade	50–51	500	5.288	241.738	16.468
Retail trade	52–59	791	5.283	233.886	15.731
Services	70–89	2999	5.097	200.189	17.014
Panel B: Risk disclosure and business strategy, by year
Year		N	Risk Disclosure	Risk Disclosure (raw)	Business Strategy
2005		288	4.881	171.094	17.931
2006		813	4.791	152.973	16.777
2007		859	4.974	176.700	16.809
2008		947	5.127	203.546	16.835
2009		1023	5.226	224.475	17.005
2010		1073	5.252	231.866	17.095
2011		1105	5.307	242.641	17.102
2012		1024	5.326	248.859	17.225
2013		1024	5.416	270.987	17.329
2014		1065	5.500	293.431	17.242
2015		1001	5.566	307.798	17.196
2016		1006	5.616	321.604	17.146
2017		837	5.766	365.992	17.183

This table reports descriptive statistics for our dependent variable, RiskDisclosure (natural logarithmic transformation and raw count values), and our independent variable of interest, BusinessStrategy, by industry (Panel A) and by year (Panel B). See Appendix A for variable definitions.

Table 3. Pairwise correlations

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
(1) RiskDisclosure	1.000
(2) BusinessStrategy	0.095*	1.000
(3) FirmSize	0.711*	0.008	1.000
(4) Leverage	0.041*	−0.094*	0.083*	1.000
(5) Profitability	0.139*	−0.175*	0.305*	−0.036*	1.000
(6) Loss	−0.143*	0.094*	−0.293*	0.095*	−0.668*	1.000
(7) HistoricBeta	0.205*	0.096*	0.221*	0.017	−0.072*	0.079*	1.000
(8) HistoricVolatility	−0.266*	0.129*	−0.417*	0.005	−0.361*	0.373*	0.421*	1.000
(9) TradingVolume	0.120*	0.078*	0.190*	−0.015	0.031*	−0.008	0.184*	0.053*	1.000
(10) CrossListing	0.329*	0.145*	0.419*	−0.027*	0.053*	−0.058*	0.112*	−0.112*	0.141*	1.000

This table reports Pearson’s correlations for the dependent variable, the independent variable of interest, and the control variables in our main regression analysis. See Appendix A for variable definitions. * indicates significance at the 1% level.

Table 4. Risk disclosure and business strategy: Main analysis

	(1)	(2)	(3)
Dependent variable	Risk Disclosure	Risk Disclosure	Risk Disclosure
Variables	Full sample	Full sample	Defenders and prospectors only
Business Strategy	0.00823***
	(3.847)
Defender		−0.0659***
		(−2.930)
Prospector		0.0498*	0.113***
		(1.771)	(2.782)
Firm Size	0.200***	0.200***	0.189***
	(37.20)	(37.28)	(17.92)
Leverage	−0.0116	−0.0146	0.00618
	(−0.730)	(−0.918)	(0.168)
Profitability	−0.00146***	−0.00162***	−0.000681
	(−2.618)	(−2.875)	(−0.614)
Loss	0.0555***	0.0537***	0.0972**
	(3.256)	(3.146)	(2.336)
Historic Beta	0.0873***	0.0875***	0.113***
	(5.594)	(5.618)	(3.392)
Historic Volatility	−0.0132	−0.00474	−0.0836
	(−0.243)	(−0.0876)	(−0.781)
Trading Volume	0.0223***	0.0234***	0.0130
	(3.907)	(4.098)	(1.378)
Cross Listing	0.0717***	0.0779***	0.128**
	(2.750)	(2.994)	(2.340)
Constant	2.300***	2.439***	2.508***
	(19.81)	(22.33)	(12.51)
Observations	12,065	12,065	1,946
Adjusted R^2	0.620	0.620	0.612
Year dummies	YES	YES	YES
Industry dummies	YES	YES	YES
Country dummies	YES	YES	YES

This table reports the results from the OLS regressions of business strategy on risk disclosure. In specification (1), the independent variable is the business strategy measure of Bentley et al. (2013). In specification (2), we include the two dummy variables Prospector and Defender. In specification (3), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 5. Risk disclosure and business strategy: Lead–lag estimation

	(1)	(2)	(3)
Dependent variable	Risk Disclosure	Risk Disclosure	Risk Disclosure
Variables	Full sample	Full sample	Defenders and prospectors only
Business Strategy	0.00864***
	(3.782)
Defender		−0.0736***
		(−3.028)
Prospector		0.0374	0.0957**
		(1.194)	(2.016)
Firm Size	0.196***	0.196***	0.182***
	(34.02)	(34.11)	(15.88)
Leverage	−0.0110	−0.0152	0.00759
	(−0.621)	(−0.858)	(0.158)
Profitability	−0.00142**	−0.00164**	−0.00110
	(−2.175)	(−2.464)	(−0.829)
Loss	0.0455**	0.0437**	0.0851**
	(2.540)	(2.438)	(1.981)
Historic Beta	0.0901***	0.0906***	0.0985***
	(5.240)	(5.275)	(2.814)
Historic Volatility	−0.0687	−0.0587	−0.0768
	(−1.122)	(−0.965)	(−0.715)
Trading Volume	0.0238***	0.0251***	0.0141
	(3.885)	(4.070)	(1.292)
Cross Listing	0.0650**	0.0718***	0.148**
	(2.445)	(2.712)	(2.547)
Constant	2.494***	2.645***	2.608***
	(19.52)	(22.09)	(11.91)
Observations	9,153	9,153	1,468
Adjusted R^2	0.629	0.628	0.596
Year dummies	YES	YES	YES
Industry dummies	YES	YES	YES
Country dummies	YES	YES	YES

This table addresses endogeneity concerns. We use OLS regression estimates with one-year lags of our independent variable of interest and of our control variables to handle any reverse causality concerns. In specification (1), the independent variable is the business strategy measure of Bentley et al. (2013). In specification (2), we include the dummy variables Prospector and Defender. In specification (3), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 6. Risk disclosure and business strategy: Alternative risk disclosure measures

	(1)	(2)	(3)	(4)	(5)	(6)
Dependent variable	RiskDisclosure	RiskDisclosure	RiskDisclosure	Relative RiskDisclosure	Relative RiskDisclosure	Relative RiskDisclosure
Variables	Full sample	Full sample	Defenders and prospectors only	Full sample	Full sample	Defenders and prospectors only
BusinessStrategy	0.00876***			−0.000142
	(3.988)			(−0.880)
Defender		−0.0689***			−0.000227
		(−2.998)			(−0.137)
Prospector		0.0515*	0.120***		−0.00410*	−0.00211
		(1.787)	(2.885)		(−1.811)	(−0.617)
FirmSize	0.202***	0.202***	0.192***	−3.50e-05	−7.47e-05	−0.000156
	(36.20)	(36.25)	(17.28)	(−0.0849)	(−0.181)	(−0.184)
Leverage	−0.0128	−0.0161	0.0104	0.00373***	0.00374***	0.00753***
	(−0.787)	(−0.986)	(0.283)	(3.106)	(3.115)	(2.677)
Profitability	−0.00148**	−0.00166***	−0.000783	−3.19e-05	−3.96e-05	0.000109
	(−2.575)	(−2.847)	(−0.694)	(−0.699)	(−0.868)	(1.058)
Loss	0.0593***	0.0574***	0.0970**	0.00349***	0.00352***	0.00236
	(3.349)	(3.236)	(2.268)	(2.680)	(2.702)	(0.770)
HistoricBeta	0.0895***	0.0897***	0.110***	−0.00154	−0.00149	−0.00183
	(5.541)	(5.566)	(3.213)	(−1.200)	(−1.164)	(−0.693)
HistoricVolatility	−0.00114	0.00822	−0.0457	0.0127***	0.0125***	0.0226***
	(−0.0202)	(0.147)	(−0.421)	(3.035)	(3.007)	(2.880)
TradingVolume	0.0196***	0.0208***	0.00993	−0.000712	−0.000700	−0.000599
	(3.410)	(3.607)	(1.034)	(−1.439)	(−1.415)	(−0.694)
CrossListing	0.0764***	0.0831***	0.137**	0.000971	0.000909	0.000960
	(2.860)	(3.120)	(2.444)	(0.533)	(0.502)	(0.287)
Constant	2.569***	2.717***	2.768***	0.202***	0.200***	0.210***
	(21.28)	(23.78)	(13.43)	(20.66)	(21.37)	(11.07)
Observations	12,065	12,065	1,946	12,065	12,065	1,946
Adjusted R^2	0.607	0.606	0.605	0.298	0.298	0.285
Year dummies	YES	YES	YES	YES	YES	YES
Industry dummies	YES	YES	YES	YES	YES	YES
Country dummies	YES	YES	YES	YES	YES	YES

This table reports the results from the OLS regressions of business strategy on risk disclosure, with alternative measures for RiskDisclosure. In specifications (1) to (3), we use the natural logarithm of the number of risk keywords of Elshandidy et al. (2013) in the annual report. In specifications (4) to (6), we use relative RiskDisclosure, which is our main risk disclosure variable, divided by the total number of sentences in the annual report. In specifications (1) and (4), the independent variable is the business strategy measure of Bentley et al. (2013). In specifications (2) and (5), we include the two dummy variables Prospector and Defender. In specifications (3) and (6), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 7. Risk disclosure and business strategy: Country characteristics

	(1)	(2)	(3)
Dependent variable	Risk Disclosure	Risk Disclosure	Risk Disclosure
Variables	Full sample	Full sample	Defenders and prospectors only
BusinessStrategy	0.00934***
	(4.341)
Defender		−0.0760***
		(−3.305)
Prospector		0.0515*	0.127***
		(1.839)	(3.246)
FirmSize	0.199***	0.199***	0.183***
	(37.54)	(37.59)	(18.00)
Leverage	−0.00752	−0.0114	0.00477
	(−0.451)	(−0.681)	(0.123)
Profitability	−0.00147***	−0.00168***	−8.57e-05
	(−2.607)	(−2.949)	(−0.0754)
Loss	0.0555***	0.0534***	0.112***
	(3.188)	(3.063)	(2.636)
HistoricBeta	0.0911***	0.0913***	0.135***
	(5.672)	(5.698)	(3.694)
HistoricVolatility	−0.0415	−0.0319	−0.155
	(−0.732)	(−0.565)	(−1.354)
TradingVolume	0.0193***	0.0204***	0.0198**
	(3.343)	(3.528)	(2.069)
CrossListing	0.0746***	0.0816***	0.125**
	(2.791)	(3.060)	(2.200)
CommonLaw	0.0667	0.0661	1.141**
	(0.357)	(0.356)	(2.248)
CivilLaw	0.111	0.119	1.119**
	(0.653)	(0.705)	(2.558)
PowerDistance	−0.00337**	−0.00333**	−0.000564
	(−2.114)	(−2.100)	(−0.301)
Individualism	0.000944	0.000916	−0.000633
	(0.660)	(0.639)	(−0.267)
Masculinity	−0.000350	−0.000229	−0.00268
	(−0.280)	(−0.183)	(−1.250)
UncertaintyAvoidance	−0.000898	−0.000995	−0.00273*
	(−0.599)	(−0.668)	(−1.950)
LongTermOrientation	0.00236**	0.00242**	0.00518**
	(2.484)	(2.540)	(2.445)
Indulgence	−0.00461***	−0.00441***	−0.00573*
	(−3.228)	(−3.072)	(−1.838)
Constant	2.237***	2.369***	1.645***
	(9.194)	(9.806)	(4.325)
Observations	12,065	12,065	1,946
Adjusted R^2	0.603	0.602	0.590
Year dummies	YES	YES	YES
Industry dummies	YES	YES	YES
Country dummies	NO	NO	NO

This table reports the results from the OLS regressions of business strategy on risk disclosure, including country-specific characteristics instead of country dummies. We include the two dummy variables CommonLaw and CivilLaw, two proxies for the country’s legal system, and variables for Hofstede’s (2001) cultural values to account for cultural differences between countries. In specification (1), the independent variable is the business strategy measure of Bentley et al. (2013). In specification (2), we include the two dummy variables Prospector and Defender. In specification (3), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 8. Risk topic coverage and business strategy

	(1)	(2)	(3)
Dependent variable	Risk topic coverage	Risk topic coverage	Risk topic coverage
Variables	Full sample	Full sample	Defender and prospector only
BusinessStrategy	−0.00114***
	(−2.643)
Defender		0.0113**
		(2.367)
Prospector		0.00293	0.000202
		(0.476)	(0.0224)
FirmSize	−0.000979	−0.000904	−0.00287
	(−0.945)	(−0.871)	(−1.203)
Leverage	−7.73e-05	0.000543	−0.00253
	(−0.0266)	(0.187)	(−0.340)
Profitability	−0.000117	−6.07e-05	−0.000126
	(−1.010)	(−0.528)	(−0.452)
Loss	0.00309	0.00336	0.00523
	(0.978)	(1.061)	(0.612)
HistoricBeta	−0.00664**	−0.00682**	−0.00359
	(−2.060)	(−2.112)	(−0.463)
HistoricVolatility	0.0200*	0.0184*	−0.0228
	(1.902)	(1.753)	(−0.898)
TradingVolume	−0.00165	−0.00190	−0.00420*
	(−1.264)	(−1.444)	(−1.817)
CrossListing	0.00568	0.00460	−0.0100
	(1.191)	(0.963)	(−0.944)
Constant	0.683***	0.662***	0.727***
	(30.14)	(29.97)	(17.37)
Observations	12,055	12,055	1,943
Adjusted R-squared	0.115	0.115	0.149
Year dummies	YES	YES	YES
Industry dummies	YES	YES	YES
Country dummies	YES	YES	YES

This table reports the results from the OLS regressions of business strategy on risk topic coverage. In specification (1), the independent variable is the business strategy measure of Bentley et al. (2013). In specification (2), we include the two dummy variables Prospector and Defender. In specification (3), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 9. Risk topics and business strategy

Panel A: Full sample
	(1)	(2)	(3)	(4)	(5)
Dependent variable	Systematic	Idiosyncratic	Financial	Tax	Legal
Variables
BusinessStrategy	0.00268	0.0187***	0.00256	0.0232***	0.00713**
	(0.955)	(7.263)	(0.875)	(3.134)	(2.124)
Control variables	YES	YES	YES	YES	YES
Constant	0.769***	1.145***	0.0607	−0.852**	−1.573***
	(5.485)	(7.164)	(0.322)	(−2.078)	(−7.992)
Observations	12,063	12,063	12,063	12,063	12,063
Adjusted R-squared	0.626	0.543	0.420	0.109	0.544
Year, industry, country dummies	YES	YES	YES	YES	YES
Panel B: Full sample
	(1)	(2)	(3)	(4)	(5)
Dependent variable	Systematic	Idiosyncratic	Financial	Tax	Legal
Variables
Defender	−0.0342	−0.143***	−0.0353	−0.120	−0.0331
	(−1.140)	(−5.113)	(−1.153)	(−1.325)	(−1.012)
Prospector	0.00411	0.0673*	−0.0117	0.100	0.144***
	(0.113)	(1.905)	(−0.300)	(1.644)	(3.018)
Control variables	YES	YES	YES	YES	YES
Constant	0.821***	1.463***	0.113	−0.482	−1.474***
	(6.203)	(9.517)	(0.622)	(−1.284)	(−7.758)
Observations	12,063	12,063	12,063	12,063	12,063
Adjusted R-squared	0.626	0.539	0.420	0.107	0.545
Year, industry, country dummies	YES	YES	YES	YES	YES
Panel C: Defenders and prospectors only
	(1)	(2)	(3)	(4)	(5)
Dependent variable	Systematic	Idiosyncratic	Financial	Tax	Legal
Variables
Prospector	0.0143	0.226***	0.0619	0.359**	0.221***
	(0.277)	(4.499)	(1.085)	(2.292)	(3.216)
Control variables	YES	YES	YES	YES	YES
Constant	0.988***	1.376***	0.419	−0.0306	−0.842***
	(3.858)	(5.737)	(1.460)	(−0.0490)	(−2.821)
Observations	1,946	1,946	1,946	1,946	1,946
Adjusted R-squared	0.621	0.540	0.412	0.098	0.517
Year, industry, country dummies	YES	YES	YES	YES	YES

This table reports the results from the OLS regressions of business strategy on five risk topics. Specifications (1) to (5) include, respectively, the five risk topics defined by Campbell et al. (2014). In Panel A, the independent variable is the business strategy measure of Bentley et al. (2013). In Panel B, we include the two dummy variables Prospector and Defender. In Panel C, we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 10. Risk disclosure readability and business strategy

	(1)	(2)	(3)
Dependent variable	Readability	Readability	Readability
Variables	Full sample	Full sample	Defender and prospector only
BusinessStrategy	0.0428***
	(5.672)
Defender		−0.257***
		(−3.225)
Prospector		0.391***	0.701***
		(3.805)	(5.183)
FirmSize	0.139***	0.141***	0.126***
	(7.195)	(7.272)	(3.201)
Leverage	−0.0559	−0.0708	−0.241**
	(−1.020)	(−1.299)	(−2.152)
Profitability	−0.00328*	−0.00372*	−0.00450
	(−1.649)	(−1.851)	(−1.191)
Loss	0.116**	0.107*	0.0335
	(1.984)	(1.817)	(0.258)
HistoricBeta	0.0904	0.0891	−0.0198
	(1.546)	(1.526)	(−0.170)
HistoricVolatility	0.507***	0.556***	0.403
	(2.769)	(3.032)	(1.178)
TradingVolume	0.0342	0.0388*	0.0206
	(1.581)	(1.774)	(0.595)
CrossListing	0.255**	0.287***	0.529**
	(2.557)	(2.868)	(2.526)
Constant	16.99***	17.66***	17.46***
	(39.76)	(42.64)	(26.53)
Observations	12,063	12,063	1,946
Adjusted R-squared	0.502	0.500	0.513
Year dummies	YES	YES	YES
Industry dummies	YES	YES	YES
Country dummies	YES	YES	YES

This table reports the results from the OLS regressions of business strategy on risk disclosure readability, which is a proxy for the complexity of risk-related sentences. In specification (1), the independent variable is the business strategy measure of Bentley et al. (2013). In specification (2), we include the two dummy variables Prospector and Defender. In specification (3), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 11. Risk disclosure and business strategy: Impact of the GFC

	(1)	(2)	(3)
Dependent variable	RiskDisclosure	RiskDisclosure	RiskDisclosure
Variables	Full sample	Full sample	Defenders and prospectors only
BusinessStrategy	0.00609
	(1.545)
Defender		−0.104**
		(−2.437)
Prospector		−0.0754	0.0168
		(−1.191)	(0.216)
GFC	0.166**	0.255***	0.241***
	(2.128)	(8.705)	(3.161)
Post-GFC	0.656***	0.672***	0.744***
	(8.313)	(21.64)	(9.680)
BusinessStrategy × GFC	0.00559
	(1.362)
BusinessStrategy × Post-GFC	0.00171
	(0.409)
Defender × GFC		0.00409
		(0.0836)
Defender × Post-GFC		0.0511
		(1.072)
Prospector × GFC		0.0597	0.0599
		(0.898)	(0.739)
Prospector × Post-GFC		0.155**	0.115
		(2.314)	(1.391)
FirmSize	0.200***	0.200***	0.189***
	(37.23)	(37.30)	(17.92)
Leverage	−0.0116	−0.0149	0.00745
	(−0.732)	(−0.938)	(0.202)
Profitability	−0.00146***	−0.00160***	−0.000655
	(−2.625)	(−2.849)	(−0.593)
Loss	0.0552***	0.0542***	0.0983**
	(3.238)	(3.173)	(2.350)
HistoricBeta	0.0871***	0.0891***	0.119***
	(5.557)	(5.715)	(3.502)
HistoricVolatility	−0.0134	−0.00506	−0.0850
	(−0.246)	(−0.0937)	(−0.796)
TradingVolume	0.0224***	0.0233***	0.0130
	(3.938)	(4.089)	(1.373)
CrossListing	0.0718***	0.0782***	0.129**
	(2.751)	(3.010)	(2.372)
Constant	2.339***	2.453***	2.560***
	(18.41)	(22.48)	(12.98)
Observations	12,065	12,065	1,946
Adjusted R^2	0.620	0.619	0.613
Year dummies	YES	YES	YES
Industry dummies	YES	YES	YES
Country dummies	YES	YES	YES

This table reports the results from OLS regressions of business strategy on risk disclosure, focusing on the effect of the GFC. We include the two dummy variables GFC and Post-GFC to account for the financial years during the GFC (2007 and 2008) and the financial years after the GFC (2009–2017), respectively, and their respective interactions with our independent variables of interest. In specification (1), the independent variable is the business strategy measure of Bentley et al. (2013). In specification (2), we include the two dummy variables Prospector and Defender. In specification (3), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 12. Risk disclosure and business strategy: Firm characteristics

Panel A: Small versus large firms
	(1)	(2)	(3)	(4)	(5)	(6)
	Firm size below the median			Firm size above the median
Dependent variable	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure
Variables	Full sample	Full sample	Defenders and prospectors only	Full sample	Full sample	Defenders and prospectors only
BusinessStrategy	0.0123***			0.00706**
	(4.066)			(2.466)
Defender		−0.0546*			−0.0989***
		(−1.705)			(−3.438)
Prospector		0.0735**	0.153**		0.0293	0.0829*
		(2.022)	(2.568)		(0.730)	(1.673)
Constant	1.845***	2.049***	2.143***	2.727***	2.857***	3.098***
	(10.39)	(12.12)	(6.318)	(14.20)	(15.51)	(8.807)
Observations	6,028	6,028	1,161	6,028	6,028	783
Adjusted R^2	0.496	0.493	0.488	0.459	0.460	0.498
Control variables	YES	YES	YES	YES	YES	YES
Year dummies	YES	YES	YES	YES	YES	YES
Industry dummies	YES	YES	YES	YES	YES	YES
Country dummies	YES	YES	YES	YES	YES	YES
Panel B: Young versus mature firms
	(1)	(2)	(3)	(4)	(5)	(6)
	Firm age below the median			Firm age above the median
Dependent variable	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure
Variables	Full sample	Full sample	Defenders and prospectors only	Full sample	Full sample	Defenders and prospectors only
BusinessStrategy	0.0112***			0.00871***
	(3.718)			(2.873)
Defender		−0.0795**			−0.0739***
		(−2.224)			(−2.597)
Prospector		0.0662*	0.178***		0.0584	0.100*
		(1.961)	(2.923)		(1.407)	(1.768)
Constant	2.248***	2.448***	2.418***	2.185***	2.318***	2.369***
	(15.20)	(18.56)	(8.568)	(12.25)	(13.12)	(7.363)
Observations	6,026	6,026	987	6,026	6,026	957
Adjusted R^2	0.611	0.609	0.588	0.619	0.619	0.642
Control variables	YES	YES	YES	YES	YES	YES
Year dummies	YES	YES	YES	YES	YES	YES
Industry dummies	YES	YES	YES	YES	YES	YES
Country dummies	YES	YES	YES	YES	YES	YES
Panel C: Low- versus high-technology firms
	(1)	(2)	(3)	(4)	(5)	(6)
	Low-tech firms			High-tech firms
Dependent variable	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure	RiskDisclosure
Variables	Full sample	Full sample	Defenders and prospectors only	Full sample	Full sample	Defenders and prospectors only
BusinessStrategy	0.0154*			0.00459
	(1.868)			(1.036)
Defender		−0.0699			−0.0321
		(−0.993)			(−0.403)
Prospector		0.142	0.131		0.0138	0.227**
		(1.088)	(0.990)		(0.357)	(2.142)
Constant	2.249***	2.506***	2.247***	2.499***	2.580***	2.181***
	(6.167)	(7.317)	(3.648)	(15.19)	(18.69)	(5.550)
Observations	862	862	127	3,050	3,050	473
Adjusted R^2	0.577	0.575	0.702	0.644	0.643	0.642
Control variables	YES	YES	YES	YES	YES	YES
Year dummies	YES	YES	YES	YES	YES	YES
Industry dummies	YES	YES	YES	YES	YES	YES
Country dummies	YES	YES	YES	YES	YES	YES

This table reports the results from our subsample analysis. Panel A reports the results for small versus large firms, Panel B young versus mature firms, and Panel C low- versus high-technology firms. In specifications (1) and (4), the independent variable is the business strategy measure of Bentley et al. (2013). In specifications (2) and (5), we include the two dummy variables Prospector and Defender. In specifications (3) and (6), we limit the sample to prospector and defender firm–year observations. See Appendix A for variable definitions. Continuous variables are winsorized at the first and 99th percentiles. The t-statistics are reported in parentheses. Standard errors are heteroscedasticity robust and clustered by firm. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table

Variable name	Definition	Source
Dependent variable
RiskDisclosure	Number of sentences in the annual report containing at least one risk keyword from the list of Elshandidy et al. (2013). Our regression analysis includes the natural logarithm of this variable.	Computer-aided textual analysis based on annual reports
Independent variables
BusinessStrategy	Composite measure based on six individual measures, computed using the average over a rolling 5-year window. The variables are ranked into quintiles, and values range between 1 and 5. All quintile ranks are added up. The individual measures are as follows:
	(1) Ratio of research and development expenses to sales	Worldscope items WC01201 and WC01001
	(2) Ratio of the number of employees to sales	Worldscope items WC07011 and WC01001
	(3) One-year percentage change in sales	Worldscope item WC01001
	(4) Ratio of selling, general, and administrative expenses to sales	Worldscope items WC01101 and WC01001
	(5) Standard deviation of the number of employees	Worldscope item WC07011
	(6) Ratio of net property, plant, and equipment to total assets	Worldscope items WC02501 and WC02999
Prospector	Dummy variable taking the value of 1 if a firm’s BusinessStrategy scores between 24 and 30, and 0 otherwise.	Based on BusinessStrategy
Defender	Dummy variable taking the value of 1 if a firm’s BusinessStrategy scores between 6 and 12, and 0 otherwise.	Based on BusinessStrategy
Control variables
FirmSize	Natural logarithm of the total assets of the firm.	Worldscope item WC02999
Leverage	Sum of short-term debt and long-term current debt, divided by firm common equity.	Worldscope items WC03051 and WC03501
Profitability	Return on assets of a firm.	Worldscope item WC08326
Loss	Dummy variable taking the value 1 if net income is below zero, and 0 otherwise.	Worldscope item WC01551
HistoricBeta	Average beta coefficient from the regression of the firm’s stock return of the market return over the last 5 years.	Datastream expression 897E
HistoricVolatility	Average volatility of stock returns over the last 5 years.	Datastream expression 400E
TradingVolume	Daily trading volume divided by the number of common shares.	Datastream items VO and NOSH
CrossListed	Dummy variable taking the value 1 if the firm has American Depositary Receipts traded on a U.S. exchange, and 0 otherwise.	Worldscope item WC11496

Table

Country	No. of firms	No. of firm–year observations	RiskDisclosure	RiskDisclosure (raw)	BusinessStrategy
Austria	36	179	5.468	264.078	18.101
Belgium	70	384	5.343	239.385	16.411
Bulgaria	4	7	5.441	281.143	12.429
Croatia	4	17	5.401	244.353	18.059
Cyprus	7	10	4.560	143.000	12.400
Czech Republic	4	14	5.427	253.071	14.000
Denmark	56	356	5.209	207.149	17.093
Estonia	6	35	5.278	209.629	14.800
Finland	84	476	5.490	266.118	17.456
France	197	1125	5.614	348.548	17.404
Germany	209	801	5.729	364.532	17.953
Greece	56	249	5.037	177.691	15.365
Hungary	10	45	5.550	314.400	15.222
Iceland	4	20	5.158	189.100	20.250
Ireland	34	182	5.250	215.929	17.148
Italy	133	704	5.647	323.114	16.903
Latvia	11	33	4.164	88.6970	14.758
Lithuania	4	7	5.151	229.286	15.429
Luxembourg	7	48	5.592	288.521	17.333
Malta	8	26	5.252	199.654	16.462
Netherlands	81	407	5.725	342.644	17.531
Norway	25	52	5.713	364.192	17.231
Poland	87	361	5.356	254.618	16.169
Portugal	24	122	5.691	338.992	14.467
Romania	5	10	5.547	308.000	13.200
Slovakia	3	18	5.461	297.222	13.333
Slovenia	6	28	6.084	459.464	16.250
Spain	29	124	5.717	374.935	15.177
Sweden	163	981	5.392	242.946	17.854
United Kingdom	977	5,244	5.081	201.198	17.093
Total	2,344	12,065

This table reports descriptive statistics for our dependent variable, RiskDisclosure (natural logarithmic transformation and raw count values), and our independent variable of interest, BusinessStrategy, separately for all countries in our study. See Appendix A for variable definitions.

Bentley, K. A., Omer, T. C., & Sharp, N. Y. (2013). Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), 780–817. https://doi.org/10.1111/j.1911-3846.2012.01174.x

 Web of Science ®Google Scholar

Elshandidy, T., Fraser, I., & Hussainey, K. (2013). Aggregated, voluntary, and mandatory risk disclosure incentives: Evidence from UK FTSE All-share companies. International Review of Financial Analysis, 30, 320–333. https://doi.org/10.1016/j.irfa.2013.07.010

 Web of Science ®Google Scholar

Hofstede, G. (2001). Culture’s consequences – Comparing values, behaviors, institutions, and organizations across nations (2nd ed.). Sage Publications.

 Google Scholar

Campbell, J. L., Chen, H., Dhaliwal, D. S., Lu, H. M., & Steele, L. B. (2014). The information content of mandatory risk factor disclosures in corporate filings. Review of Accounting Studies, 19(1), 396–455. https://doi.org/10.1007/s11142-013-9258-3

 Web of Science ®Google Scholar