Normative Framework for Risk Disclosure Index and Its Empirical Analysis

This chapter aims to provide a normative framework to measure the quality of risk disclosures in annual reports. The index uses textual analysis to capture not only the quantity but also the quality of disclosures, based on three semantic attributes, namely, nature (qualitative/quantitative), tense (past/future/both) and tone of the disclosures. The index is based on 69 risk and risk-related items. The index has been empirically computed for the sample 429 non-financial companies for each of the 10 years from 2005 to 2015. In addition, an aggregative analysis, focussing on phase-wise, age-wise and industry-wise analysis has been carried out. Further, a dis-aggregative (variable-wise) detailed analysis has been carried out to gain deeper insights into ‘most/least’ frequently and ‘most/least’ comprehensively disclosed risk items.