Risk Disclosures in Italian IPO Prospectuses: A Comparison of Manufacturing and IT Companies
Although the disclosure of corporate risks is considered as key information for sound investors' decision making, recent research has shown that companies' reporting practices are unhelpful, as they are generic and boilerplate. The current empirical evidence is based mainly on the information provided in the annual reports of listed companies, whereas research on risk disclosures in initial public offerings (IPOs) is still limited. This paper performs a quantitative and qualitative analysis of risk reporting within IPO prospectuses for a sample of six manufacturing and six information technology (IT) Italian companies. The aim is to provide further empirical evidence meaningful to regulators and accounting standard setters to: i) define 'best practice' for risk reporting and ii) to assess the extent to which industry affects risk disclosures. The level of risk information is measured by carrying out a detailed content analysis, based on a coding instrument comprising 76 risk categories and two type attributes (time and quantitative orientation) with each aspect of the risk information expressed in terms of lines. The findings indicate that prospectuses place significant emphasis on external risks, but neglect other sources of uncertainties. The comparison between the two industries shows that they share similar disclosure practices, with the IT companies disclosing significantly higher proportions of forward looking and external risk information than the manufacturers. Keywords: Disclosure, risk reporting, IPO prospectuses, content analysis