Derivative Usage, Risk Disclosure, and Firm Value

Risk disclosure is generally regarded as crucial in order for investors to make informed decisions in the resource allocation process. Our study is the first to empirically investigate the value-relevance of corporate risk disclosure. We focus on the disclosure of foreign exchange (FX) risk, which is an activity notorious for its lack of transparency. Our empirical analysis involves a FX risk disclosure index for a sample of 114 Swedish derivative users. Contrary to expectations our results suggest that, holding the level of derivative usage constant, firm value decreases in the level of risk disclosure.