Corporate Governance and Financial Risk Disclosure: Empirical Evidence in the Portuguese Capital Market

Abstract

The aim of this study is to analyze the influence of certain characteristics associated with the corporate governance model on the level of disclosure of financial risks in non-financial entities listed in Euronext Lisbon. For this purpose, a content analysis of the reports and accounts of those companies was conducted for the periods 2017 to 2019 through a disclosure index based on the disclosure requirements contained in international financial reporting standards. Subsequently, in order to assess the influence of the corporate governance model on the level of risk disclosure, several simple linear regression models were estimated, which correlate the disclosure index with certain characteristics associated with the board of directors and the auditor. The results obtained show that larger boards of directors with greater gender diversity and auditors belonging to the Big 4 positively influence the level of disclosure of financial risks.

Key Terms in this Chapter

Auditor: An audit professional whose main function is to issue an opinion on the company's accounts.

Credit Risk: Risk of loss caused by non-payment by the counterparty or deterioration of the credit position.

Market Risk: Risk of loss arising from adverse changes in market rates and prices, such as interest rates and exchange rates.

Corporate Governance Model: Corporate governance structure, comprising the bodies responsible for managing and controlling companies.

Disclosure Index: Indicator of the extent of the disclosure presented by a certain company, relative to certain information, measured by the sum of the items disclosed on the total items considered.

Liquidity Risk: Inability of a company to meet its obligations due to lack of financial resources, thus incurring losses.