Hyonok Kim

Effects of audit partners on clients’ business risk disclosure

We empirically investigate audit engagement partners’ involvement in business risk disclosure. Specifically, we examine whether the quality of business risk disclosure is influenced by engagement partner tenure and knowledge. We also examine whether the effects of partner tenure and knowledge are similar for Big 4 audit firms and non-Big 4 firms. Since fiscal year 2003, listed companies in Japan have been required to disclose business risk information. Although the business risk information is not audited, auditors concerned about their audit quality may seek to influence clients’ business risk disclosure practices. Giving advice to management on the narrative business risk disclosure can contribute to improving the perceived value of the auditor’s services which can be a competitive advantage. Using a sample of Japanese listed companies from 2003 to 2010, we find that if the engagement partners’ tenure is shorter, a company discloses more business risk information and the disclosure is more detailed. Fur...

Ex-post Information Value of Risk Disclosure

The purpose of this paper is to examine the effects of information security initiatives on corporate value and demonstrate the significance of establishing information security governance. In order to achieve this goal, we conducted three analyses. First, we focus on companies that disclosed information security risks in the “Business Risk etc.” section in their financial statements and examine how differently stock markets evaluate such companies as compared to those which do not when an information security incident occurred. We find that stock price of companies that disclosed information security risks fall by a smaller margin than those which did not. Secondly, according to a questionnaire survey of corporate users who utilized IT-related equipment, we find that companies those who properly disclosed their information security initiatives enjoy higher evaluations than those which did not. Finally, we also find that information security initiatives have positive effects on user preference and satisfaction in business dealings. Based on the results, it is considered that it is economically beneficial for companies to carry out information security initiatives. The results of this paper also imply that business risk disclosure has not only ex-ante information value but also ex-post information value.

The Effects of Risk Disclosure on Evaluation of Management Forecast Revisions

In this paper, I empirically examine the effects of narrative risk disclosure on the evaluation of management forecast revisions. A unique feature of this study is direct investigation of the role of narrative disclosure in valuation using textual risk disclosure. I find that the management forecast revision of firms with a high business risk disclosure level is discounted by the market because of their higher risk. However, a market reaction is not found when a firm issues a downward revision because the higher level of business risk disclosure has the effect of mitigating a market shock. Finally, the market only discounts a management forecast revision when the common risk is disclosed. The results indicate that narrative disclosure provides useful information to aid understanding of financial information. In addition, the results also imply that business risk disclosure has ex-post information value.