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

See all articles by Marc Badia

Marc Badia

IESE Business School

Mary E. Barth

Stanford University - Graduate School of Business

Miguel Duro

IESE Business School

Gaizka Ormazabal

University of Navarra, IESE Business School

Date Written: January 2, 2019

Abstract

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

Badia, Marc and Barth, Mary E. and Duro, Miguel and Ormazabal, Gaizka, Firm Risk and Disclosures About Dispersion of Asset Values: Evidence from Oil and Gas Reserves (January 2, 2019). Forthcoming in The Accounting Review, DOI: 10.2308/accr-52445. Available at SSRN: https://ssrn.com/abstract=2725387 or http://dx.doi.org/10.2139/ssrn.2725387

Marc Badia

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 932534200 (Phone)

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Miguel Duro

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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