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

Journal of Accounting Research, Volume 59, Issue 1, March 2021

Posted: 1 Apr 2021

See all articles by Luzi Hail

Luzi Hail

University of Pennsylvania - The Wharton School; European Corporate Governance Institute (ECGI)

Maximilian Muhn

University of Chicago - Booth School of Business

David Oesch

University of Zurich

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2021

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 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 information gap in bid‐ask spreads appears within 30 minutes of the announcement and persists for two weeks, during which new information gradually substitutes for past disclosures. We validate the information dynamics 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 suggest that historical disclosures help investors attenuate information asymmetry in light of unexpected news.

Keywords: risk disclosures; adverse selection; liquidity; information asymmetry; information dynamics; 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 (March 1, 2021). Journal of Accounting Research, Volume 59, Issue 1, March 2021, Available at SSRN: https://ssrn.com/abstract=3806637

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)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Maximilian Muhn

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

David Oesch

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
199
PlumX Metrics