Firm Risk and Disclosures About Dispersion in Asset Values

69 Pages Posted: 18 Jul 2017

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: July 2017

Abstract

This study examines whether mandated disclosure about the dispersion of the value of oil and gas (O&G) reserves provides information about firm risk. Based on a sample of Canadian O&G firms between 2004 and 2011, we find that the difference between the 10th and 50th percentiles of O&G reserves, which is a measure of dispersion of the reserves distribution, is positively associated with future total and idiosyncratic equity return volatility, systematic risk, and credit risk. We also find that disclosure of increases in reserves dispersion is associated with weaker stock price reactions to increases in reserve levels and with increases in bid-ask spreads, both of which indicate the disclosures convey information about risk associated with the reserves. Additional tests reveal it is unlikely that our findings are attributable to managerial opportunism in estimating reserves. Taken together, our study provides evidence that disclosures relating to the dispersion of non-financial asset values can provide information relevant to assessing firm risk.

Suggested Citation

Badia, Marc and Barth, Mary E. and Duro, Miguel and Ormazabal, Gaizka, Firm Risk and Disclosures About Dispersion in Asset Values (July 2017). CEPR Discussion Paper No. DP12144. Available at SSRN: https://ssrn.com/abstract=3003921

Marc Badia (Contact Author)

IESE Business School ( email )

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

Mary E. Barth

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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