The Effect of Oil and Gas Producers' Frr No. 48 Disclosures on Investors' Risk Assessments

41 Pages Posted: 5 Jun 2002

See all articles by Daniel B. Thornton

Daniel B. Thornton

Smith School of Business at Queen's University

Michael Welker

Queen's University - Queen's School of Business

Date Written: May 8, 2002

Abstract

We hypothesize that oil and gas producers' 10-K market risk disclosures, recently mandated by SEC Financial Reporting Release Number 48 (FRR No. 48), convey useful information to investors about commodity betas (defined as the sensitivity of firms' equity price changes to commodity price changes). Consistent with the hypothesis, we find that a sample of firms disclosing sensitivity or value-at-risk (VAR), as mandated by FRR No. 48, tend to experience greater commodity beta shifts at 10-K filing dates than do non-disclosers in a matched control sample. To enhance confidence that the observed shifts are associated with FRR No. 48 disclosures, we repeat the analyses in the year before the release was effective, when firms did not disclose sensitivity or VAR. At the prior year 10-K filing dates, we find that neither the disclosure nor the control sample experienced significant commodity beta shifts. We conclude that the results are consistent with FRR No. 48-mandated sensitivity and VAR disclosures providing useful information to investors.

Keywords: disclosure regulation, market risk disclosures, derivatives, oil and gas industry, commodity beta

JEL Classification: M41, M45, G12, G13, L71

Suggested Citation

Thornton, Daniel B. and Welker, Michael, The Effect of Oil and Gas Producers' Frr No. 48 Disclosures on Investors' Risk Assessments (May 8, 2002). Available at SSRN: https://ssrn.com/abstract=314039 or http://dx.doi.org/10.2139/ssrn.314039

Daniel B. Thornton

Smith School of Business at Queen's University ( email )

143 Union Street, #358
Kingston, Ontario K7L 3N6
Canada
613-328-5213 (Phone)
613-533-2321 (Fax)

HOME PAGE: http://smith.queensu.ca

Michael Welker (Contact Author)

Queen's University - Queen's School of Business ( email )

Kingston
Ontario, Ontario K7L 3N6
Canada

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