Firm Risk and Disclosures About Dispersion of Asset Values: Evidence from Oil and Gas Reserves
Forthcoming in The Accounting Review, DOI: 10.2308/accr-52445
61 Pages Posted: 13 Mar 2016 Last revised: 4 Jun 2019
Date Written: January 2, 2019
The question we address is whether mandated disclosure about dispersion of non-financial asset values can provide information relevant to assessing firm risk. Using a sample of Canadian oil and gas (O&G) firms between 2004 and 2011, we find that the difference between the disclosed 10th and 50th percentiles from the O&G reserves distribution, which measures dispersion of the distribution, is positively associated with future total and idiosyncratic equity return volatility, systematic risk, and credit risk. We also find that disclosure of increased reserves dispersion is associated with weaker stock price reactions to increases in reserves and with increases in bid-ask spreads, both of which indicate the disclosures convey information about risk associated with reserves. Additional tests reveal little evidence of managerial opportunism in the reserves disclosures. Taken together, our evidence suggests quantitative disclosures about the dispersion of non-financial asset values can provide information relevant to assessing firm risk.
Keywords: Risk-relevant information, risk disclosure, oil and gas reserves, fair value accounting
JEL Classification: M41, G12, C23, G32
Suggested Citation: Suggested Citation