Board's Financial Incentives, Competence, and Firm Risk Disclosure : Evidence from Finnish Index Listed Companies

This paper examines some novel corporate governance-based determinants of risk disclosures among index listed Finnish companies. Firms' risk disclosures are analysed in terms of their quantity and coverage. We focus on two board characteristics not examined in prior related literature: (1) non-executive board members' self-interested financial incentives, measured by their share or option ownership and annual compensation, and (2) non-executive board members' competence measured by their experience in the company as well as managerial capability proxied by prior education. The sample is composed of the OMXH25-listed firms representing the most traded and followed firms among Finnish publicly listed companies. We find that the risk disclosures of these firms can be explained by the financial incentives (wealth and compensation) as well as competence-related factors (attrition rate and education). Overall, the results indicate that among the ‘best disclosers' the narrative risk disclosures are, on average, on a high level and variation in risk reporting is largely associated with board characteristics. This paper contributes to the extant literature by demonstrating the impact of previously unexamined board characteristics on the quality of highly followed firms' narrative risk disclosures