Value relevance of value-at-risk disclosure

Value relevance of value-at-risk disclosure The SEC issued FRR No. 48 in 1997 to enhance public disclosure of firms’ exposures to market risk. We examine whether the quantitative value-at-risk (VAR) estimates disclosed by 81 non-financial firms during the period 1997–2002 are value-relevant using the earnings-returns relation. The empirical results indicate that high VAR is associated with weaker earnings-returns relation. Further analysis shows that VAR is positively and significantly associated with future stock return volatility. Our evidence suggests that investors perceive the earnings of firms with substantial market risk exposure to be less persistent, and adjust the future abnormal earnings for the higher risk exposure. Thus, this results in a lower expected rate of return. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Value relevance of value-at-risk disclosure

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Publisher
Springer US
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-007-0038-7
Publisher site
See Article on Publisher Site

Abstract

The SEC issued FRR No. 48 in 1997 to enhance public disclosure of firms’ exposures to market risk. We examine whether the quantitative value-at-risk (VAR) estimates disclosed by 81 non-financial firms during the period 1997–2002 are value-relevant using the earnings-returns relation. The empirical results indicate that high VAR is associated with weaker earnings-returns relation. Further analysis shows that VAR is positively and significantly associated with future stock return volatility. Our evidence suggests that investors perceive the earnings of firms with substantial market risk exposure to be less persistent, and adjust the future abnormal earnings for the higher risk exposure. Thus, this results in a lower expected rate of return.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Aug 13, 2007

References

  • A robust var model under different time periods and weighting schemes
    Angelidis, T; Benos, A; Degiannakis, S
  • The association between unexpected earnings and abnormal security returns in the presence of financial leverage
    Dhaliwal, D; Lee, K; Fargher, N

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