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

82 Pages Posted: 25 Mar 2017 Last revised: 25 Jan 2019

See all articles by Luzi Hail

Luzi Hail

University of Pennsylvania - The Wharton School

Maximilian Muhn

Humboldt University of Berlin

David Oesch

University of Zurich

Date Written: January 23, 2019

Abstract

We examine the relation between disclosure quality and information asymmetry among market participants following an exogenous shock to macroeconomic risk. In 2015 the Swiss National Bank (SNB) abruptly announced that it would abandon the longstanding minimum euro-Swiss franc exchange rate. We find evidence suggesting 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 validate the informational role of past risk disclosures with three field surveys: (1) Sell-side analysts emphasize the importance of existing (risk) disclosures in evaluating the translational and transactional effects of the currency shock. (2) Lending banks’ credit officers rely on past disclosures as the primary information source available for smaller (unlisted) firms in the immediate aftermath of the shock. (3) Investor-relations managers use existing financial filings as a key resource when communicating with external stakeholders. 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, adverse selection, liquidity, information asymmetry, currency risk, 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 (January 23, 2019). 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

Register to save articles to
your library

Register

Paper statistics

Downloads
489
rank
55,557
Abstract Views
2,094
PlumX Metrics