The Communicative Effectiveness of Market Risk Disclosures in the Annual Report of Financial Firms: Evidence from an Understandability Study

Pusat Pengajian Pengurusan
Universiti Sains Malaysia
11800 USM Pulau Pinang
Malaysia


School of Management
University of Southampton
Highfield, Southampton SO1T 1BJ
United Kingdom


Abstract

The study seeks evidence on the understandability of the textual narrative of market risk information by using the Cloze Procedure. Based on Bormuth’s 57 percent cloze criterion reference point, the results show that the narrative is less
understandable. Compared to other narrative from the same section of Management Discussion and Analysis, the market risk narrative is more difficult to understand. The implication of these results is that market risk narrative is not accessible for unsophisticated readers. In addition, firms that have a higher level of derivatives activities are found to write market risk narratives in a more understandable manner than less active ones. The management of these active financial firms therefore should be more careful about their communication effectiveness. This group of firms which is also big in terms of asset size is more likely to commit resources toward presenting are understandable and effective message to intended readers.

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Citation

Yahya, S. Y., & Casson, P. C. (1999). The Communicative Effectiveness of Market Risk Disclosures in the Annual Report of Financial Firms: Evidence from an Understandability Study. Jurnal Pengurusan, 18, 55–73.

@article{yahya1999communicative,
  title={The Communicative Effectiveness of Market Risk Disclosures in the Annual Report of Financial Firms: Evidence from an Understandability Study},
  author={Yahya, Sofri and Casson, Peter},
  journal={Jurnal Pengurusan},
 

volume={18},
  number={},
  pages={55—73},
  year={1999},
  doi={},
  publisher={Penerbit UKM},
}

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18 (1999) 55 – 73

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