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Do Risk Disclosures Matter When it Counts? Evidence from the Swiss Franc Shock

72 Pages Posted: 25 Mar 2017 Last revised: 13 Nov 2017

Luzi Hail

University of Pennsylvania - The Wharton School

Maximilian Muhn

Humboldt University of Berlin

David Oesch

University of Zurich

Date Written: November 12, 2017

Abstract

We examine the long-term transparency effects of past risk disclosures following an exogenous shock to macroeconomic risk. In 2015 the Swiss National Bank (SNB) abruptly announced it would discontinue the longstanding minimum euro-Swiss franc exchange rate. We show that firms with more transparent disclosures regarding their foreign exchange risk exposure ex ante exhibit significantly lower information asymmetry ex post. The gap in bid-ask spreads appears within 30 minutes of the SNB announcement and persists for two weeks. We confirm the informational role of past risk disclosures with a field survey of three groups of market participants: (1) Sell-side analysts emphasize existing disclosures to evaluate the translational and transactional effects of the currency shock. (2) Lending banks’ credit officers rely on past disclosures as the primary resource available for smaller unlisted firms in the immediate aftermath of the shock. (3) Investor-relations managers use existing financial filings as a key internal information source when communicating with external stakeholders. In sum, the results imply that risk disclosures continue to attenuate information asymmetry and the costs of adverse selection well beyond their initial publication date.

Keywords: Risk disclosures, historical information, liquidity, information asymmetry, exchange rates, archival studies, surveys

JEL Classification: F31, G12, G14, G15, G30, M41

Suggested Citation

Hail, Luzi and Muhn, Maximilian and Oesch, David, Do Risk Disclosures Matter When it Counts? Evidence from the Swiss Franc Shock (November 12, 2017). Available at SSRN: https://ssrn.com/abstract=2939935 or http://dx.doi.org/10.2139/ssrn.2939935

Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)

Maximilian Muhn

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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