72 Pages Posted: 25 Mar 2017
Date Written: March 23, 2017
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 to 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 three weeks. We confirm the informational role of past risk disclosures by surveying three groups of market participants: (1) Sell-side analysts emphasize existing disclosures to evaluate the translational and transactional effects of the currency shock. (2) For smaller unlisted firms, existing disclosures were the only resource available to lending banks’ credit officers in the immediate aftermath of the shock. (3) Existing financial filings were a key information source for investor-relations managers 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: Suggested Citation
Hail, Luzi and Muhn, Maximilian and Oesch, David, Do Risk Disclosures Matter When it Counts? Evidence from the Swiss Franc Shock (March 23, 2017). Available at SSRN: https://ssrn.com/abstract=2939935 or http://dx.doi.org/10.2139/ssrn.2939935