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Type Working Paper
Scope Discipline-based scholarship
Title Do Risk Disclosures Matter When it Counts? Evidence from the Swiss Franc Shock
Organization Unit
Authors
  • Luzi Hail
  • Maximilian Muhn
  • David Oesch
Language
  • English
Institution University of Zurich
Series Name SSRN
Number 2939935
ISSN 1556-5068
Number of Pages 55
Date 2020
Abstract Text 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.
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Official URL https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2939935
Other Identification Number merlin-id:20712
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Additional Information forthcoming Journal of Accounting Research