Does mandatory IFRS adoption improve risk disclosure quality? Evidence from the European insurance industry

Abstract

Purpose

This study aims to investigate the effect of mandatory international financial reporting standards (IFRS) adoption on the risk disclosure quality by listed European insurers.

Design/methodology/approach

The study used a content analysis of the annual reports and consolidated accounts of 13 insurance companies listed in the European market between 2002 and 2007 based on two regulatory frameworks, Solvency and IFRS.

Findings

The results showed a significant effect of the mandatory adoption of IFRS and a clear improvement in the quality of risk disclosure. Moreover, risk disclosure is positively associated with the size of the company.

Research limitations/implications

The authors can consider the relatively limited size of the sample as a limitation of this study. Moreover, the manual content analysis used to be considered subjective.

Practical implications

The findings of this study provide useful insights to professional and regulatory bodies about the consequences of IFRS adoption to enhance transparency and particularly risk disclosure.

Originality/value

The research contributes to the existing literature. First, the authors have shown that companies are improving in the quality of risk disclosure even before 2005. Second, the authors have shown that the year 2005 is distinguished by a marked improvement in disclosure trends, with companies aligning themselves with coercive and mimetic regulatory forces. Third, the authors highlight the significant effect of mandatory IFRS adoption even in highly regulated industries, such as the insurance industry.

Citation

Torchani, R., Damak-Ayadi, S. and Haj-Salem, I. (2024), "Does mandatory IFRS adoption improve risk disclosure quality? Evidence from the European insurance industry", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-09-2023-0518