Market risk disclosure: evidence from Malaysian listed firms
| Pages | 57-69 |
| Date | 20 February 2009 |
| DOI | https://doi.org/10.1108/13581980910934045 |
| Published date | 20 February 2009 |
| Author | Radiah Othman,Rashid Ameer |
| Subject Matter | Accounting & finance |
Market risk disclosure: evidence
from Malaysian listed firms
Radiah Othman
Research Management Institute, Universiti Teknologi Mara, Shah Alam,
Malaysia, and
Rashid Ameer
Faculty of Accountancy, Universiti Teknologi Mara, Shah Alam, Malaysia
Abstract
Purpose – The purpose of this paper is to investigate the market risk disclosure practices among
Malaysian listed firms. Specifically, it aims to examine the level of compliance with FRS132: Financial
Instruments – Disclosure and Presentation for financial periods beginning or after 2006.
Design/methodology/approach – The approach taken is content analysis and coding procedure.
Findings – Although a large number of companies have shown compliance with FRS132 in relation
to disclosing the financial risk management policy, there are systematic differences across companies
in terms of level of details (i.e. qualitative and quantitative) disclosure. Interest rate disclosure was the
most mentioned category and the credit risk was the least mentioned category of market risk. There is
telling evidence that most Malaysian firms did not engage in hedging any type of market risk over the
reporting period of 2006-2007.
Research limitations/implications – There is a need for some standardized risk reporting format
to achieve greater financial transparency to make investors aware of the market risks.
Originality/value – This is believed to be the first study to provide survey findings on the use of
derivatives instruments by listed firms in Malaysia.
Keywords Disclosure, Financial reporting, Malaysia, Financial risk
Paper type Research paper
1. Introduction
Estimation, presentation and dissemination of financial risk measures are the basis of
risk reporting by financial institutions and other organizations (Holt, 2006). Raghavan
and Li (2006) argue that the structural economic environment and the regulatory
changes have led to the evolution of the both qualitative and quantitative market risk
reporting by the organizations. Market risk is defined as the risk of loss arising from
adverse changes in market rates and prices such as interest rates, currency exchange
rates, commodity prices, or equity prices. Derivatives are an integral part of market
risk management policy. Derivatives are typically off-balance sheet items. Their
accompanying rights and obligations (and hence gains and losses) usually circumvent
financial statement disclosure. In the absence of disclosure of these off-balance sheet
items, it has been argued that investors’ are unable to assess all factors that affect a
firm’s financial condition[1]. On the other hand, according to proprietary costs theory,
firms limit disclosure of potential risk information to the financial market because of
the existence of disclosure related, or proprietary, costs. Firms may not like to disclose
extensive information that might have future repercussions for their bare existence due
to sensitivity of such information.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
Market risk
disclosure
57
Journal of Financial Regulation and
Compliance
Vol. 17 No. 1, 2009
pp. 57-69
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980910934045
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