Master Thesis The association between firm size and age diversity of the board of directors on strategic risk disclosure

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1 University of Groningen

Faculty of Economics and Business MSc Accountancy & Controlling

Master Thesis

The association between firm size and age diversity of the

board of directors on strategic risk disclosure

Student number S2769190 E-mail r.helmantel@student.rug.nl Supervisor Jim Emanuels Co-assessor Bos, F.J.

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Abstract

This study examines whether there is an relation between gender diversity in the board of directors, firm size of large firms and the quality of strategic risk disclosure. There is not much existing literature about strategic risk disclosure, neither is the relation with the board of directors. This research tends to increase the knowledge about the relation. Additional tests asses if this relation is generazible to the EU, USA and UK. A sample of 360 firm-year observations from 120 Fortune 500 firms in the period 2015-2016 is used. Firm size and gender diversity are positively related to the quality of strategic risk disclosure for the EU. Keywords: Quality of strategic risk disclosure, firm size, gender diversity, agency theory

From an agency perspective, this paper addresses the question about how firm size and gender diversity within the board of directors influences the quality of strategic risk disclosure from a sample of EU, UK and USA derived from the fortune 500. A sample of 360 firm-year observations from 120 Fortune 500 firms in the period 2015-2016 is used. An OLS Regression was used to analyze the data. Additional tests asses if this relation is generazible to the EU, USA and UK. To the best of my knowledge, the research is novel by providing new insights regarding the strategic aspect of the quality of risk disclosure. Our results confirms the benefits from more female in the board of directors. Firm size shows no significant relation with the quality of strategic risk disclosure.

Keywords: Quality of strategic risk disclosure, firm size, gender diversity, board of directors, agency theory

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Index

Abstract 2 Introduction 4 Theoretical framework 86 Research methodology 126

Results and analysis 2218

Conclusion and discussion 272

References 3024

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Introduction

In the past, many large organisationsorganizations,such as Enron, Ahold, Tyco and Worldcom, encountered accounting scandals. These scandals highlighted the need for better corporate governance, to recover trust within the financial markets. The need for more transparency of information was highlighted by five accounting firms (by now, known as the 'big 4') (Amran, & Manaf Rosli Bin & Che Haat Mohd Hassan, 2008). The accounting firms submitted a petition (December 2001) to the US Exchange and Securities Commission, to request issuance of an interpretive release, which would provide guidance to public

companies on preparing expanded disclosures for inclusion in their annual reports. (Amran & Manaf Rosli Bin & Che Haat Mohd Hassan, 2008).

A need for more disclosure arose, because of these scandals. Cole and Jones (2005) showed an increase in interest of risk disclosure after the accounting scandals. Risk is an important consideration, because risk is unavoidable for any business (Amran & Manaf Rosli Bin & Che Haat Mohd Hassan, 2008). The execution of a business automatically contains related risks.

Cole and Jones (2005) found an increased demand for information, particularly in the non-financial sector of the annual report, of disclosures. Research from Ellis et al. (2012) shows the relevance of non-financial information to the market. The non-financial sector contains strategic information, highlighting a growing need for strategic risk disclosure. Contributing, Lim et al. (2007) stated that strategic information is important non-financial information. The need for information in understanding the risks a firm takes to create value and the need for information on the sustainability of the value-creation strategies is highlighted by Beretta & Bozzolan (2004). Stakeholders have a stake in the firm and therefore need the information in order asses the viability of the firm.

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Met opmerkingen [JE|T2]: Wat bedoel je met sector? Bedoel je section/paragraph?

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Abolfazli, Mohammadzadeh, Peiravian, Zonoozi, Sharifnia and Vashegani (2019) showed the importance of the strategy of a firm regarding its performance. Therefore, stakeholders should know the strategy of a firm and the risks arising from this strategy. Marston & Shrives (1991) found that it is hard to appreciate financial information without accompanying explanations, because of an increase in the complexity of business strategies, operations, and regulations.

Abolfazli, Mohammadzadeh, Peiravian, Zonoozi, Sharifnia and Vashegani (2019) showed the importance of the strategy of a firm regarding its performance. Therefore, stakeholders should know the strategy of a firm and the risks arising from this strategy in order to make good decisions. The non-financial information provided is insufficient and the result is uncertainty related to the financial information. The importance of non-financial information is shown by the EIU-MCC (2001), by showing that financial performance is also affected (and even more so) by strategic and operating risks. Linsmeir et al. (2002) found a strong negative relation between the uncertainty and difference in opinions of investors on the market valuation of firms and risk disclosure. Listed firms have been improving the communication of their long-term value-generation capabilities by increasing the amount of information disclosed with regard to the risks faced and their expected impact on future profits, in order to fulfill the demands of their stakeholders (Beretta & Bozzolan, 2004). TheThis research focuses on the strategic aspect of risk disclosure.

There are dDifferent factors that affect strategic risk disclosure. Corporate governance shows a relation with the disclosure of information in annual reports (Elshandidy and Neri, 2015). The research identified a number of governance gender diversity within the board of directors as a determinants which influences the quality disclosure in the annual reports. , and

characteristics of the board of directors is considered to be a determinant (Elshandidy and Neri, 2015). Barakat and Hussainey (2013Cabeza‐García, Fernández‐Gago and Nieto (2018)), for example, highlighted the importance of investigating the impact of board composition, especially gender diversity, on risk disclosure. Additionally, Byrnes, Miller and Schafer (1999) found that the way boards make decisions varies, because of gender diversity. Male are, on average, less cautious and aggressive then female, which affects the process of decision making of the board of directors (Byrnes, Miller & Schafer, 1999). Gender diversity is considered one of the most significant sources of diversity within the board of directors (Lückerath-Rovers, 2013) and is a central issue in contemporary debates (Seierstad, 2016). Seierstad (2016) shows that efforts are made to help females in obtaining board positions. Besides many economic and social justifications that show the importance of gender diversity,

Met opmerkingen [JE|T3]: Is dit een generieke uitspraak?

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Met opmerkingen [JE|T4]: Hier moet je meervoud gebruiken (males/females)

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regulatory focus could also be seen as an important justificationfound board independence as a key driver of risk disclosure. Several quotas or other legislation has been implemented to support females in obtaining their role in the board of directors. Many European countries and the UK implemented regulation in order to increase female representation in the board of directors of firms (Sila, Gonzalez & Hagendorff, 2016). Concluding, board characteristics, and especially gender diversity, show a relation with risk disclosure and therefore a relation between board characteristicsgender diversity and strategic risk reporting disclosure is to be expected. The relation influence of gender diversity within the board of directors on strategic risk disclosure can be explained by the monitoring function of the board of directors. Namely, the board of directors has responsibility for the institution and implementation of adequate mechanisms to monitor and control the firm’s activities, including the promotion of transparency through information dissemination (Dias et al., 2017; Farooq et al., 2015). The scandals showed a widely held concern, which is the inability of the board of directors to align management interest with stakeholder interest (Huang, Chan, Chang & Wong, 2012). The focus on more female directors is apparent from the change in gender diversity from 2010 till 2017. The UK, US and EU, was apparently 9, 12 and 11 percent for the year 2010 (Catalyst, 2018). The percentages in 2017 were approximately 27, 22 and 25 percent in 2017 (Catalyst, 2018). Stakeholders want transparency about strategic risks. The relevance of females in the board of directors is prevealedrevealed by literature from Adams & Ferreira (2009). Adams & Ferreira (2009)They found that a greater presence of females on the board resulted in higher attendance and greater monitoring. In this research, the influence of the presence of women within the board of directors on the quality of strategic risk disclosure is being investigated.

Besides gender diversity, firm size is identified as an determinant of the quality of strategic risk disclosure. Narrative risk disclosures are more affected by the size of the firm instead of the risk levels of a firm (Elzahar & Hussainey, 2012).Heitzman et al. (2010) also show that larger public firms are more likely to disclose in a wide variety of aspects. Additionally, firm size is seen as a underlying reason for disclosure behavior of management (Karim & Pinsker & Robin, 2013). Following the agency theory, larger firms have higher monitoring and agency costs, because of greater information asymmetry (Zadeh & Eskandari, 2012). Research into this area should help to reduce these costs, which is relevant for firms and shareholders. Dependent on firm size, the quality of risk disclosure is affected by differences (compared to smaller firms) in the complexity of administration systems, lawsuits, the quality

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of auditors, the incentives to disclose about strategic risks and economies of scale. Therefore firm size is seen as a relevant factor in affecting the quality of strategic risk disclosure. My study contributes , to the best of my knowledge, to the literature in several ways. First, the relation between gender diversity withand the quality of strategic risk disclosure is not investigated yet. Secondly, the relation between firm size and the strategic aspect of the quality of risk disclosure is not investigated yet. Thirdly, less literature about the strategic aspect of the quality risk disclosure is available. This research adds new information about strategic risk disclosure to the literature. lastly, the research adds information to the literature regarding the risk information gap between companies and their stakeholders (Linsley and Shrives, 2006), because it focus on strategic risk disclosures. Strategic risk disclosures could reduce the risk information gap.

The research tries to explain the relation between the quality of strategic risk disclosure, gender diversity and firm size. Therefore, the following research question will be answered:

To what extent will firm size and age gender diversity within the board of directors affect the quality of strategic risk disclosure of a firm?

The research starts with the theoretical framework, followed up by the academic contribution and research methodology and the results, and finalized with the first resultsdiscussion and conclusion. .

Met opmerkingen [JE|T5]: Ingewikkelde zin.

Met opmerkingen [JE|T6]: Door de moeilijke vorige zin is niet duidelijk of hier een postieve of juist negatieve relatie verwacht wordt, of nog helemaal geen richting

Met opmerkingen [JE|T7]: Dat iets nog niet onderzocht is, is alleen relevant als er een (groot) theoretisch of maatschappelijk probleem is. idem voor het feit dat er nog geen literatuur is. misschien kun je iets zeggen over verwachte praktische relevantie?

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Theoretical framework

Strategic risk disclosure

Risk disclosure is becoming more important, because firms are increasingly susceptible to risks due to increasing volatility, uncertainty, complexity and ambiguity (Bennett &

Lemoine, 2014). Risks should be divided into external risks, risks that arise from the relation between the organization and the external world, and internal risks, risks that arise from within the organization, says Shivaani (2018). Strategic risks can be considered as external risks, because these risks are related to basic changes in the economy or the political environment (Cabedo & Tirado, 2004). Cabedo & Tirado stated that the evolution of the economic environment causes a high level of uncertainty, which affects firm performance and wealth creation (2004). These risks are considered as strategic risks, since they arise from economical changes. Strategic risks will affect the organization, varying over the level of sensitivity a firm shows towards each of the factors that defines the environment (Cabedo & Tirado, 2004). For example, new regulatory requirements can impose compliance risks for organizations, but not all organizations will face these risks due to different characteristics

Met opmerkingen [JE|T8]: Nieuwe COSO (2017): strategische risico’s kunnen ook veroorzaakt worden door de strategie van het bedrijf zelf (agressief of passief bijvoorbeeld).

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9 (meaning, there is no duty to comply with the new regulatory requirements for that specific organization/industry).

Proper management of theis strategic risks is needed, because materialized risks could threaten the survival of an organization (Shivaani, 2018). Materialization of risks could affect stakeholders, but stakeholders could influence the organizations strategy and decision making (due to the hierarchical structures and power dynamics) (Shivaani, 2018). Additionally, the failure of mitigating strategic risks (failing risk management) could result in the

materialization of strategic risks, which could affect stakeholders. Therefore stakeholders could influence the strategy of an organization, which may result in new strategic risks.

Verracchia (2001) supports this by stating that information dissemination may entail strategic implications, and highlighted the extreme sensitivity of risk management. Also, Stulz (1996) argues that risk management is the most strategic dimension of an organization.

Cabedo & Tirado (2004) stated that firms should be informed on how changes in certain factors that indicate the evolution of the economy influence the firm. Additionally, Shivaani (2018) highlighted the greater need to effectively inform various stakeholders about the strategic risks. According to the agency theory (Jensen & Meckling, 1976), organizations should disclose information of strategic risks in order to reduce agency costs. Stakeholders demand this information, because they have a stake in the firm. Bosse & Philips (2016) showed that stakeholders have self-interest. The stake in the organization combined with the self-interest of stakeholders causes the demand for transparency regarding the strategic risks of an organization, because, as mentioned above, materialization of strategic risks could threaten the survival of an organization (Shivaani, 2018) and therefore could harm stakeholders.

In case of insufficient disclosure about strategic risks, the stakeholders face limited transparency. Limited transparency results in information asymmetry (Steinle & Schiele & Ernst, 2014), and not meeting the demand of stakeholders. Information asymmetry results in costs that stakeholders have to incur in order to obtain the information about strategic risks. Disclosure may reduce information asymmetry and reduce agency costs (Guttentag, 2007). Donaldson & Preston (1995) found that organizations have to judge the interests of external and internal stakeholders in order to create added value. Organizations are continuously seeking new ways to create value (Weinstein & McFarlane, 2017), so this provides organizations with incentives to disclose about the strategic risks they face. Additionally,

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organizations have the social responsibility and obligation to meet stakeholders demand (Alnajjar, 2000; Cormier & Magnan, 2003).

Firm size

There is no clear relation between firm size and the quality of strategic risk disclosure found in current literature. Some studies found a negative relation between firm size and the quality of risk disclosure (Campbell et al, 2014), whereas other studies found a positive relation (Linsley & shrives, 2006; Abraham and & Cox, 2007; Beretta & Bozzolan, 2004). Rajab and Schachler (2009) Beretta & Bozzolan (2004) did not find any significant relation.

SummarisingSummarizing, existing literature shows no clear distinction between relation between firm size and quality of risk disclosure. According to Jorion (1997), three types of risk exist within a firm, namely: business risk, strategic risk and financial risk.

This shows that strategic risk disclosure is part of the risk disclosure process and therefore no clear distinction can be derived from theis literature.

The size of an organization may influenceaffects the quality of strategic risk disclosure.

Larger firms have more resources available to provide a higher disclosure quality compared to smaller firms and, because of their size, face incentives to disclose strategic risk related information. Several reasons that explain an increase in strategic disclosure quality, through an increase in firm size, are identified. Firstly, Moores and& Chenhall (1994) found a positive relation between the size of an organization and the adoption of more complex administration systems. Larger Organizationsfirms can adopt more complex administration systems, because more competencies can be obtained through an increase in firm size. Larger organizations have the required financial en technical capabilities, the opportunity to establish and sustain scientific facilities, the means to acquire professional and skilled personnel, and the opportunity to get money (Damanpour, 2010). These factors should lead to the adoption of more complex administration systems. , while more capabilities are obtained through an increase in firm size. The proper implementation and working of the administration systems will lead to a better control of strategic risk, and therefore a higher quality of strategic risk disclosure could be achievedreporting. Chenhall (2003) showed that better control leads to the ability to process more information. Therefore, organizations are able to process more information related to strategic risks, and should subsequently be able to provide higher quality in strategic risk disclosure. As described in the first paragraph, organizations face

Met opmerkingen [JE|T9]: Dit stuk lijkt in strijd met je inleiding en met de afleiding van de hypothese hierna. Graag meer consistentie in de redenering

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11 incentives to provide a higher quality of strategic risk disclosure. Secondly, Lopes and Rodriques (2007); Deumes and Knechel (2008) state that larger firms, compared to smaller firms, could use economies of scale for disclosing information regarding risks, because they have access to more resources to afford disclosure practices. Thirdly, an aspect which influences the quality of strategic risk disclosure is the potential threat of lawsuits. Larger firms are more susceptible for lawsuits, because larger firms have access to more money (Karim & Pinsker & Robin, 2013). Therefore, managers will disclose more information and more timely, in order to subject firms to lower settlement costs in lawsuits (Karim & Pinsker & Robin, 2013). This assumption is based on the capability (because of their resources) of larger firms to pay plaintiffs and their attorneys more easily than smaller firms (Bonner et al., 1998). Additionally, Francis et al. (1994) state that larger firms have more disclosures and therefore may be more exposed to litigation compared to smaller firms. The quality of strategic risk disclosure is expected to improve, because of the threat of a lawsuit. Fourthly, larger firms most likely hire high quality auditors (like the 'big 4') (Karim & Pinsker & Robin, 2013). High quality auditors provide better auditing services and consequently the quality of the strategic risk disclosures will improve. Lastly, managers face incentives to disclose strategic risk related information. Larger firms are more complex compared to smaller firms. More complex firms tend to have higher risk levels and therefore a greater extent of information asymmetry (Deumes and Knechel, 2008). Firms will try to improve risk disclosure if they face high risk levels, in order to reduce uncertainties among investors (Hassan, 2009). The disclosure of information about risks may assure investors about the future of a firm (Iatridis, 2008). Additionally, larger firms face greater levels of public visibility, which causes higher public scrutiny among investors (Amran, Bin and Hassan, 2008). Because of the enhanced scrutiny, managers will try to achieve a higher quality of strategic risk disclosure. From the perspective of managers, disclosing risk related information helps to show their managerial skills to the stakeholders and to promote themselves to try to obtain higher compensations (Abraham and Cox, 2007). Therefore, managers want to show their abilities to handle increased strategic risk levels, by disclosing about strategic risk related information.

Besides the adoption of more complex administration systemreasons mentioned aboves, the role of the competitive position of an organization is of importance. The agency theory states

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that the quality of disclosure could be increased by reducing information asymmetry (Jensen & Meckling, 1976). But this increase in disclosure quality could also be harming the competitive position of an organization (Verrecchia, 2001). This is an threat to larger firms, because in most cases larger firms have a better competitive position compared to smaller firms. Improved disclosure could provide rivals with proprietary strategic information (Darrough & Stoughton, 1990; Maksimovic & Picher, 2001). Competitors could use the strategic risk information disclosed in order to improve their own strategic risk management. This may improve strengthen the mitigation of risks of competitors, which affects the competitive position of the organization that discloses their strategic risk information. The imitation of the disclosure processes is a threat to firms, but it is expected that the reasons to disclose about strategic risks will outweigh the threat of imitation of risk practices by competitors.

Therefore, organizations with littler risks and a better competitive position are ought to make more disclosures (Janssen & Roy, 2011). It is not likely that the competitive position of these organizations will be harmed. Following the agency theory, therefore, it is likely that firms with a better competitive position and lower strategic risks would have better disclosure quality (Hughes & Pae, 2015). Larger firms have a stronger competitive position. Literature (Wan & Bullard, 2008) has shown that larger organizations adopt new strategic activities at a higher rate in comparison to smaller organizations in the area of new product competition, global competition, product competition and distribution-channel competition. The research of Wan & Bullard (2008) stated that the faster adoption may be, among other things, caused by more capital, a stronger research team, and more skilled marketing personnel.

Additionally, larger firms should realize the financial benefits of strategic market orientation more easily, because they have more capital than smaller organizations (Foreman & Donthu & Henson & Poddar, 2014). Resource expenditures are considered as a requirement of market orientation (Kirca & Jayachandran & Bearden, 2005). Hence, if firm size increases, the competitive position will not be affected due to more capabilities in comparison to smaller firms. The competitive position of larger organizations is considered stronger in comparison with smaller firms. Therefore the competitive position does not hamper the willingness of firms to disclose strategic information. Concluded, larger organizations are able to adopt more complex administration systems, able use economies of scale in disclosing about strategic risks, susceptible to lawsuits because of insufficient strategic risk disclosure, audited by higher quality auditors and face incentives to disclose about strategic risks. The threat of

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imitation of risk disclosure practices by competitors is not expected to outweigh the reasons to disclose about strategic risks. and have the incentives to disclose the improved strategic risk information, while the disincentives are not applicable to larger organizations and Ttherefore the following hypothesis is made up:

H1: Firms size is positively related to the quality of strategic risk disclosure.

Gender diversity

In order to create more gender diversity within boards, countries have been implementing legislation through setting up quotas relating to gender diversity. Legislation concerning gender diversity in the board of directors is expected to aim at creating more shareholder-focused and efficient boards (Saona & Muro & Martin, 2018). More efficient and shareholder-focused boards, created trough legislation, should enhance the monitoring process (Saona & Muro & Martin, 2018). Armstrong, Guay, and Weber (2010) found legal instruments to enforce quotas as an effective and fast means of achieving change.

The first county that implemented gender diversity quotas was Norway (De Cabo et al., 2019). De Cabo et al. (2019) The legislation required boards to exist at least of 40 percent of female. France implemented an initiative in 2011, which requires 40 percent of the board to exist of female directors (De Cabo et al., 2019). Spain uses a quota of 40 percent and the Netherlands uses a percentage of 30 percent (De Cabo et al., 2019). Italy and Belgium require companies to use a quota of 33 percent (De Cabo et al., 2019). Germany uses a quota, 30 percent, which relates to the supervisory board instead of the board of directors (De Cabo et al., 2019). The legislation by the governments of Spain, The Netherlands, Italy and Belgium is applicable for public companies (De Cabo et al., 2019). The legislation in Norwegian and France is related to public companies as well as private companies (De Cabo et al., 2019). Sweden does not use quota to ensure gender diversity, but corporate governance codes. The Swedish corporate Governance Code state that an equal distribution among the genders should be reached (Numhauser-Henning, 2015). The code is applicable for both private and public companies (Numhauser-Henning, 2015). Companies have more flexibility in increasing the percentage of female on the board of directors, because companies have no fixed targets regarding gender diversity (Numhauser-Henning, 2015). Therefore, companies

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could design their own way in which they try to decrease gender diversity. Concluding, countries try to relatively increase gender diversity within the board of directors and gender diversity is considered a topic of interest nowadays.

The role of the board of directors in risk management tends to be ambiguous. This is caused by the combination of risk monitoring and the function of strategy approving/directing. Competitive strategy is a combination of goals for which the firm is striving and the means by which it is seeking to get there (Porter, 1980). The board has an important role in achieving strategic goals and controlling the strategic risks caused by their strategy. Nyberg (2011) supports this, by showing that boards determine strategic direction and also risk appetite and procedures. Additionally, the OECD (2004) highlighted the role of the board and management relating to risk. The OECD mentioned the increasing importance the role of the board has related to risk policy. The board of directors is responsible for the monitoring of

implementation by management (OECD, 2004) and the board of directors provides crucial guidelines for thethe managing of risks to meet the firms desired risk profile by management (OECD, 2004). The ambiguity of the role of the board in managing risks is resulting in a conflict of interest (McConnell, 2012). The board of directors accepts the risks related to the strategy, by approving the strategy, and is therefore considered as the risk taker (McConnell, 2012). Subsequently, the board of directors have to review and monitor these risks, which results in a conflict of interest (McConnell, 2012). Therefore, Tthe board of directors are responsible for monitoring their own performance and this will lead to subjectivity related to the likelihood of failure (McConnell, 2012), because the board of directors do not want to depreciate their own decisions. The quality of strategic risk disclosure may decrease, due to the conflict of interest. The board of directors reputation decreases if inappropriate risk management is in place. A loss in reputation could lead to a less in financial instruments, because stakeholders may leave the company. The board of directors will try to mitigate the reputational risk. Following the agency theory (Jensen & Meckling, 1976), stakeholders obtain the strategic risk related information through the disclosure of a firm by management. A low quality of strategic risk disclosure could hamper the provision of relevant information, and therefore the risk management policies of the board of directors could become less visible to stakeholders. The limited visibility leads to information asymmetry. The conflict of interest may, in order to fulfill the legal responsibilities the board of directors have, lead to 'box ticking' (uncritically accepting management's risk assessment) of the board (McConnell, 2012).

Met opmerkingen [JE|T10]: Dit stukje over de governance praktijk is interessant, maar is het een onderbouwing voor je hypothese en hoe dan?

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15 The role of the board of directors related to strategic risk disclosure is highlighted above. The existence of female directors in the board of directors may affect the risk management policies and therefore the quality of the strategic risk disclosure. For example, Saona, Muro and Martin (2018) found a positive and significant relation between female directors and the efficacy of corporate governance and financial reporting. The existence of female directors in the boards is receiving more attention (Ellwood & amp & Garcia-Lacalle, 2015). Several female related factors are identified.Literature showed the existence of significant differences in perceptions, values and beliefs between male and female (Powell, 1990).Therefore, Female directors bring unique perspectives, work styles and experiences to the board of directors (Daily and Dalton, 2003). Several female related factors which contribute to the proper working of the board of directors are identified. First, greater gender diversity (relatively more female in the board) contributes to the diversity of opinions and prospects to discussions of the board of directors (Barako & Brown, 2008). Literature (Barako & Brown, 2008) says that therefore, the transparency of information increases. Higher transparency of information enables the board of directors to become better informed regarding about risk assessment, also strategic risks, of management. Second, literature claims that females ask harder questions, because women face increased incentives to ask critical questions (Konrad et al.,2008; Adams & Ferreira, 2007). Therefore, the outcome of the board meetings is likely improve and the members tend to be more informed about the strategy and its related risks. Thirdly, females are better in obtaining information and show greater risk aversion and ethical behavior (Gul & Srinidhi & Anthony, 2011). Ibrahim & Angelidis (1995) confirm this finding by showing improved corporate behavior and adoption of ethical criteria, if gender diversity increases. Female's ethical behavior is explained by the Affection, kindness, interpersonal sensitivity, helpfulness, sympathy and concern about others welfare (Eagly et al., 2003). Fourthly, Betz et al. (1989) state that female are better in communicating, while male are more profitable orientated. Better communication will increase information transparency, because members and parts of the organization will be better informed about the strategy and the risks coming with it. Due to these three four findings, the judgementjudgment of strategic risk information may improve. Strategic risk information is more transparent and therefore better interpretable. Also, the board of directors is better informed about strategic risks. Consequently, the board of directors will be better able to monitor management and adjust risk policies to the current situation. Therefore, at the one hand the board has less incentives to weaken the disclosure about the strategic risks and, at the other hand, have more incentives

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to disclose the proper working of risk management procedures to the stakeholders. This will affect the quality of the strategic risk disclosurethe board of directors will be better able to monitor management. Literature showed that female in the board of directors increases the likelihood of further information transparency by the disclosure of audit reports that contain less uncertainties and scope limitation qualifications (Pucheta -Martínez & Bel -Oms & Olcina -Sempere, 2016), and therefore the quality of strategic risk disclosure is perceived higher. The problem of 'box ticking' may reduce because of the improved corporate behavior and adoption of ethical criteria (Ibrahim & Angelidis, 1995).

The fiduciary duties of the board of directors includes the duty of continuous disclosure (McConnell, 2012). As discussed, from the agency theory perspective, organizations should disclose strategic risks. Stakeholders demand this information, because they have a stake in the firm. Additionally, organizations have the social responsibility and obligation to meet stakeholders demands (Alnajjar, 2000; Cormier & Magnan, 2003). The existence of more female in the board of directors lead to a more stakeholder oriented board. Zhang et al. (2013) found that female directors have certain psychological traits, that enhances female willingness to focus more on stakeholder claims. Therefore, the board of directors will (if gender diversity is higher), try to meet stakeholders demands. Consequently, the information asymmetry decreases and the quality of the strategic risk disclosure will improve. Management is, monitored by the board of directors, responsible for managing strategic execution risks (McConnell, 2012). Gul et al. (2011) showed that female directors function as a powerful mechanism of managerial supervision. The board of directors will be better able to monitor management, due to the female related findings discussed above, and therefore more gender diversity will align the decisions of management with the interests of the stakeholders more sufficient (Frías-Aceituno & Rodríguez-Ariza, & García-Sánchez, 2013; García-Sánchez et al., 2017; Prado-Lorenzo & Garcia-Sanchez, 2010).

Concluding, the board of directors is, due to a larger female presence within the board of directors, better able to monitor management. The culture of the firm will also shift, because of the improvements caused by this larger female presence, to a more trustful and reliable culture relating to all the disclosures. (García-Sánchez & Suárez-Fernández & Martínez-Ferrero, 2019). These findings brought forth the following hypothesis:

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Met opmerkingen [JE|T11]: Deze zin loopt niet, of ik snap hem niet. Het is toch zo dat de effectiviteit in jouw redenering vergroot wordt door meer vrouwen? Die als-dan redenering lees ik hier niet.

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H2: Gender diversity is positively related with the quality of strategic risk disclosure.

Research methodology

Sample

The objective of this research is to determine the influence of firm size and gender diversity on the quality of strategic risk disclosure. The sample consists of 120 publicly listed firms derived from the Fortune 500. The sample is further specified in table 1.The financial- and insurance companies are left out, because their competitive environment differs from the

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competitive and political environment of non-financial companies (Shivaani, 2018). Cabedo & Trado (2004) found that strategic risks arise due to the disturbance in the economic- and political environment. The risks for financial-, and insurance companies will be different and, because of this difference, not fit the sample. Additionally, Linsley & Shrives (2006) stated that financial- and insurance companies are more risk focused in comparison to non-financial firms. The expected quality of strategic risk disclosure does for that reason not fit the sample. The distribution of firms regarding their country is as followed: 14 firms from the UK, 62 firms from the USA, and 44 firms from the EU. Only the UK, US and EU are used, because that fits in best for all the students and this enables us to collectively collect the data regarding the quality of strategic risk disclosure. Due to different reasons, the full sample has not been analyzed. Therefore a number of randomly selected firms are evaded from the sample. The sample selection is represented below. The sample consists of 120 publicly listed firms derived from the Fortune 500. Only publicly listed firms are used, becauseThe data was,

partly, manually collected through making use of the annual reports or proxy statements (if the annual report does not contains the needed information).The other part of the data was collected through use of the ORBIS database.

For each firm the annual reports from 2015, 2016 and 2017 were taken into consideration, which results in 360 firm-year observations.

Quality of strategic risk disclosure

in order to assess the mitigation of agency problems, data is collected. The data is manually collected out of the annual reports of the sample. Marston & Shrives (1991) stated that the annual report is the most comprehensive financial report available to the public. Additionally, Lang and Lundholm (1993) found that the level of disclosure in the annual report has a positive relation to the amount of corporate disclosure communicated to the stakeholders. Therefore the resource in collecting data related to quality of strategic risk disclosure is the annual report.

The quality of strategic risk disclosure can be measured by different techniques (Shivaani, 2018). A content analysis is the most common way to measure disclosure (Linsley and

Met opmerkingen [JE|T12]: Dit kan niet zonder nadere toelichting van het proces in tekst of voetnoot. Niemand weet wie “students” zijn.

Met opmerkingen [JE|T13]: uitleg

Met opmaak: Regelafstand: 1,5 regel

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19 Shrives, 2006), but Beretta and Bozzolan (2004) stated that it is about 'what' and 'how' the information is disclosed instead of 'how much'. Another technique to measure the quality of strategic risk disclosure is an 'index'. Shrivastav & Kalsie (2017) showed that many studies use disclosure index as a measurement technique, but no standard index exists. A disclosure index is a more comprehensive measurement technique (Shrivastav & Kalsie, 2017), whereas a content analysis is more 'quantitatively' focused, an index is more 'qualitatively' focused. A lot of research states that the quality of information is more important than the quantity (Beck & Campbell & Shrives, 2010; Beretta & Bozzolan, 2004; Hasseldine & Salama, & Toms, 2005; Hooks & van Staden, 2011). Therefore, an index to measure the quality of strategic risk disclosure is created. An quality index fits the research best, because the focus of the strategic risk disclosure is on the quality related aspect instead of the quantity aspectrelated. The quality of strategic risk reporting of a firm will be measured through making use of an index which was composed, together with four fellow students, whom also measured the quality of strategic risk reporting. The data needed for the index, to perform the analysis, was also collected with these four students.

Eight aspects of strategic risk disclosure were identified and assessed. The aspects of the index were derived from the article of Miihkinen (2012) and partly from an article of Linsley

and Shrives (2006). The first risk, environment, is important, because it can influence the

reputation of an organization. It seems that environmental risks in partícularparticular are considered moral issues by many people (Böhm & Tanner 2013; Feinberg & Willer 2013). Additionally, reputational damage affects customers interest in a firm, which has economical consequences for the organization. Also, non-compliance with regulations can result in fines. The second and third risks are industry and competition. The risks are explained through 'porters 5 forces model'. Porter (2008) stated that the firmsfirms’ strategy is affected by competition and industry. New entrants in the industry could be a threat to the strategy. Exit barriers could be a threat to the strategy, because the costs of leaving the industry may be high (Porter, 2008). Switching costs affect the competitive rivalry and therefore the strategy of an organization (Porter, 2008). The fourth risk is technology related. Weimer and Marin (2006) showed the importance, by stating that the public policy addressing risks must balance between the enabling of technological innovation and protecting society from the risks of unintended adverse consequences. Technological hazard refers to the threat-potential of a technology or its products, related to the potential to harm people, nature, capital, or human-made facilities (Renn & Benighaus, 2013). Technological risks can have major impacts,

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because organizations are mostly data driven these days and damage to the data can be fatal. The fifth risk considers regulatory compliance. Bui & De Villiers (2017) found that a relation between the business strategy and the regulatory environment. Regulatory uncertainty hampers the business strategy of an organization, because the events as a result of their strategy have to comply with regulations. The sixth and seventh risks, suppliers and customers, are explained through Porters 5 forces model. Porter (2008) stated that the firms strategy is affected by suppliers and customers. Suppliers affect the strategy, by using their 'supplier' power (Porter, 2008). Suppliers can be large and , have abilities to change customers or substitute their products, and are therefore able to negotiate with customers (Porter, 2008). Customers may have the ability to substitute, place large orders or have monopoly positions and therefore are able to negotiate with suppliers (Porter, 2008). The organizations may face these powers and subsequently, have to change the strategy. The eight and last risk is organizational competencies. Organizational competencies are crucial in achieving success, but hard to identify, recognize, discover and differentiate (Civelli, 1998). Organizational competencies, and the improvement of these competencies, are needed to be competitive or to improve the competiveness.

An unweighted measurement method was applied. Each of the eight risks were judged on the basis of the mentioning, likelihood of occurrence, impact and the evolvement of the risk. For every of these four aspects a score was given, one in case of presence or zero in case of absence, to determine the scores of the eight risks (from 0 to 4) and to calculate a total score of the firm (from 0 to 32). The use of an quality index entails subjectivity (Ashton, 1974). The possible scores contain one and zero, in order to limit the subjectivity. The total number of students measuring is five and therefore subjectivity could arise between the given scores. To further limit the subjectivity problem, each firm scores are performed in double by two different students. This helped to identify differences in scores and therefore could have reduced possible subjectivity.

Firm size

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21 Firm size can be measured in different ways. Prowse (1992) used several measures, because of a changing research purpose. Each manner of measurement has advantages and

disadvantages (Dang & LI & Yang, 2018). A survey from Dang & Li & Yang (2008) showed that total assets, total sales and market value of equity are the most popular proxies. Dang, &

Li & and Yang (2008) stated that total assets measures the total resources of the firm. Several studies use sales as a measurement method. Total sales is related to the product market competition (Dang & LI & Yang, 2018). The research use total assets, because the research focuses on the resources. Firm size was measured through making use of a content analysis with a ratio scale. A ratio scale was used, because total assets has a zero (interval hasn't). The data was obtained through ORBIS. A logarithm was used to eliminate the effect of different measurement units

Gender diversity

DeBoskey, & Luo & and Wang (2018); Dutta and Bose (2006) measured gender diversity by the percentage of females within the board of directors. The data was obtained through the annual report. If the annual report did not provide the needed data, the proxy fillings were used. A ratio scale was used, because the number of female directors has a zero.

Control variables

A Ccontrol variablesis are needed to improve accuracy of the research. Without a control variable, the possibility exist that another variable is influencing affecting the relation between the firms size and age diversity with the quality of strategic risk reporting. Thise

research used several control variables in order to exclude the effect of other variables in our research.

The control variables are the following.

Firstly, leverage was used as control variable and measured as the ratio of the total liabilities divided by the equity. Desta, Kaihula and Kifle (2019) found a positive relation between leverage and the disclosure of firms. Higher leverage means more debt, since it is the ratio of the total liabilities divided by equity. Barako, & Hancock and& Izan (2006); Connelly et al. (2011) stated that external stakeholders, due to the higher leverage, become more powerful and this will cause more disclosure. Firms will disclose more in order to provide a good signal to debt holders relating to the future fulfillment of obligations (Connelly et al. 2011).

Met opmerkingen [JE|T15]: bedoel je “This”

Met opmerkingen [JE|T16]: leg uit

Met opmerkingen [JE|T17]: je schrijft wat DeBoskey et al. hebben gedaan, maar ik kan onvoldoende volgen of je hier aangeeft dat je die methode hebt overgenomen.

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Secondly, growth was used as a control variable and measured as the change of the logarithm of sales between two consecutive years. Literature highlights the influencing role of

information asymmetry and agency costs on the growth of a firm, through the efficiency of investments of a firm (Stein, 2003). Firms access to lower cost external financing get limited and therefore the ability of the firm to obtain profitable investments decreases (Demirguc-Kunt and Maksimovic, 1998). Disclosures can be used as mechanisms to mitigate the decrease in profitable investments, through lowering the costs of external financing, and therefore fund growth opportunities (Verrecchia, 2001; Stein, 2003).

Thirdly, profitability was used as a control variable and measured as the ratio of income before taxes divided by the total assets. The profitability of a firm is positively associated with disclosure (El-Gazzar & Fornaro, 2003). The research argues that an increase in profitability stimulates management to provide investors with a greater amount of information in order to increase investors confidence in the firm, which causes an increase in management

compensation. Also, Haniffa and Cooke (2002) found a significant relation between extent of disclosure and a firm's profitability.

Fourthly, research and development was used as a control variable and measured as the logarithm of sales. Literature (Aboody and lev, 2000) found that higher levels of R&D cost intensity lead to less transparency towards investors. The providers of the information do not get any return from the obtainers of the information (Swift, 2014). Especially information about R&D costs, which is an innovative and changing aspect, is valuable for firms. The strategic approach to R&D costs can be used by competitors in order to improve the R&D performance of their firm. Therefore, firms face incentives to disclose less information (Swift, 2014). The control variable year was used to control for time-series differences, using dummy variables (Hooghiemstra et al. 2015).

Finally, the return on equity was used as a control variable measured as the net income divided by the equity. Literature (Omar & Simon, 2011) found a significant relation between the return on equity and disclosure. A dummy variable was created for 2015, 2016 and 2017. A logarithm was used to eliminate the effect of different measurement units

Models of analysis

The hypotheses were measured by a regression analysis performed in STATA 15 software.

Met opmerkingen [JE|T19]: Hoe weet ik wat alle afkortingen van variabelen zijn die je in deze sectie gebruikt?

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23

The model relating to the relation between the control variables and the quality of strategic risk reporting, is stated below (model 1):

SRDQĳ= ß0ĳ + ß1LEVĳ + ß2GROWTHĳ + ß3PROFĳ + ß4R&Dĳ + ß5ROEĳ + ß6Y2016ĳ + ß7Y2017ĳ

The model relating to the relation between gender diversity and the quality of strategic risk reporting, is stated below (model 2):

SRDQĳ= ß0ĳ + ß1GENDERĳ + ß2LEVĳ + ß3GROWTHĳ + ß4PROFĳ + ß5R&Dĳ ß5ROEĳ

+ ß6YEARROEĳ + ß7 R&Dĳ + ß78 Y2016ĳ + ß89Y2017ĳ

The model relating to the relation between firm size and the quality of strategic risk reporting, is stated below (model 3):

SRDQĳ= ß0ĳ + ß1SIZEĳ + ß2LEVĳ + ß3GROWTHĳ + ß4PROFĳ + ß5R&Dĳ + ß6ROEĳ + ß7Y2016ĳ + ß8Y2017ĳ

SRDQĳ= ß0ĳ + ß1SIZEĳ + ß2LEVĳ + ß3GROWTHĳ + ß4PROFĳ + ß5ROEĳ + ß6 R&Dĳ + ß7 Y2016ĳ + ß8Y2017ĳ

Where i is the quality of strategic risk disclosure for firm i for year j.

The model relating to the relation between gender diversity and the quality of strategic risk reporting, is stated below:

SRDQĳ= ß0ĳ + ß1GENDERĳ + ß2LEVĳ + ß3GROWTHĳ + ß4PROFĳ + ß5ROEĳ + ß6YEARĳ + ß7 R&Dĳ + ß8 Y2016ĳ + ß9Y2017ĳ

The model with all the variables, also the full model (model 4), is stated below

SRDQĳ= ß0ĳ + ß12SIZEĳ + ß23GENDERĳ + ß34LEVĳ + ß45GROWTHĳ + ß56PROFĳ + ß67ROER&Dĳ + ß87 ROE&Dĳ + ß89 Y2016ĳ + ß910Y2017ĳ

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Results and analysis

This chapter describes the results obtained from the performed analysis. First, the descriptive statitisticsstatistics will be discussed. A Univariate was added to the descriptive statistics.

Secondly, the main analysis is performed. The relation between the qQuality of strategic risk disclosure and gender diversity and firm size will be explained. Also the relation between the

qQuality of strategic risk disclosure and the return on equity, leverage, growth, research and development costs and profitability will be explained. Thirdly, additional tests were performed to check for the quality of the model. The breusch-Pagan/Cook-Weisberg test, ramsey RESET test and a re-performance of the OLS regression using robust standard errors were performed. Finally, The regression was re-performed with a different measure for firm size in order to check for the influence of the different measures for firm size. The regression

was re- performed discrimates for the separate continents (USA, UK and EU), in order to check or hypothesizes are valid for the separate continents. between the USA, UK and EU.

Descriptive statistics

Met opmerkingen [JE|T20]: Niemand snapt dit zonder toelichting. Bij voorkeur hier niet noemen, maar gewoon in de bespreking van de resultaten en dan direct uitleggen waarom en hoe deze tests zijn uitgevoerd.

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25 Table 2 and 3 shows the descriptive statistics relating to the variables. The

descriptivesdescriptive statitisticsstatistics for the full sample are expanded with a distinction made between low quality ofSQRD strategic risk disclosure scores, which are scores below 16, and high quality of strategic risk disclosure SQRD scores, which are above 15. The boundary of 15 was chosen, because this is the mean of the SQRD quality of strategic risk disclosure of the full sample. No differences worth mentioning were found between firms with a quality of strategic risk disclosure above the mean and below the mean.The firms show differences between the quality of their strategic risk disclosure that are worth mentioning. The maximum score of 32 differs much from the mean score of the SQRD quality of strategic risk disclosure (15.225). The average organization scores below halve of the maximum score. This shows, generally, a lacking quality of strategic risk disclosure of firms. The maximum (28) and minimum (0) are exceptions, since the standard deviation is approximately 4.5 with a mean of approximately 15. So the average firms score in a range from 10.5 to 19.5 on the index for the quality of strategic risk disclosure. These findings are in line with the theory, which expected a lacking quality of strategic risk disclosure. Females are generally underrepresented in the board of directors. The maximum (57.1%) is an exception since the mean is 25.2 percent with a standard deviation of 11.5 percent. Concluded, the average firm have a board of directors consisting of approximately 13.5 to 36.5 female directors. The standard deviation is approximately halve of the mean, which shows differences in the board of directors between the firms.so the gender diversity within the board of directors is firm specific and differs between several firms.The leverage, profitability, growth and return on equity show large standard deviations (3.5, 0.093, 0.192, 0.180) compared to the means (3.102, 0.230, 1.346, 0.164). This shows large differences in these aspects. Table 3 shows no further particularities relating to the variables. Table 4 contains an univariate T-test, which shows significance (at the 0.1 level) for firm size. It shows that firms with a lower quality of strategic risk disclosure are bigger firms, although the difference is small. This is not in line with the hypothesis, which expects bigger firms to have better risk disclosure quality. Table 5 4 includes a correlation matrix to check for

multicollinearity. Multicollinearity is harmful when the values out of the correlation matrix exceed 0.8 (Kennedy, 1999Ahrweiler & Gilbert & Pyka, 2016)). The highest value found is 0.448. Therefore no high correlations between the variables are found and multicollinearity was not considered an issue. The independent variables shows no mutual correlation, which could cause problems for the model. To check for omitted variable bias, the Ramsey reset test was performed. The result shows a value of 0.7456, which means no problems of functional

Met opmerkingen [JE|T21]: Waarom deze segmentering? Wat is relatie met onderzoeksvraag en hypothesen?

heeft opmaak toegepast: Tekstkleur: Rood

Met opmerkingen [JE|T22]: Wat is dan de norm?

Met opmerkingen [JE|T23]: Dat snap ik niet. De theorie heeft toch geen verwachting.

heeft opmaak toegepast: Tekstkleur: Lichtgroen

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misspecification. To check for heteroscedasticty, the Breusch-Pagan/Cook-Weisberg test was performed. The value of 0.5974 shows there is no heteroscedasticity, so the model is considered Homoscedastic. For the OLS regression, this means that there is no linearity problem between the coefficients. In order to check for endogenous regressors, a hausman test was performed. The value of 0.5787 shows there is no correlation between the predictor variable and the error term.

Main analysis

Table 56 shows the ß-coefficients of the OLS regression with their significances. Four models

were used for the regression. Leverage, growth and return on equity are winsorized at the 10

percent level, in order to mitigate the problem of outliers that affect the results in an unfavorable manner. 10 percent was used, because this was shown as the appropriate

percentage following the chart with the regression line and the points of observations. because they show big outliers in the descriptives. Four models were used for the regression.Model 1 contains a regression between the SQRD quality of strategic risk disclosure and the control variables (Research and development costs, leverage, profitability, growth and return on equity). Model 2 contains a regression between the SQRD quality of strategic risk disclosure and and gender diversityGENDER and the control variables. Model 3 is a regression between the SQRD quality of strategic risk disclosure and FIRM SIZEfirm size and the control variables. Model 4, also the full model, is a regression where all variables are regressed with the SQRDquality of strategic risk disclosure. The VIF (variance influence factor) is used to further check the problem of multicollinearity. Multicollinearity is not considered an issue, since the highest VIF for all the model is below 4. The adjusted R-squares for all the models is low (R2=0.025, R2=0.031, R2=0.022, R2=0.049), which shows a low explanatory power for the models. The F-values of all the models are significant at the 5 percent level low

(Model 1:F=2.3 P<0.05, Model 2: F=2.33 P<0.05, Model 3: F=2.01 P<0.05, Model 4: F=2.15 P<0.05), but significant at the 5 percent level. The significance at the 5 percent levelis makes the models testablevalid, because it shows that changes in the dependent variable (quality of strategic risk disclosure) are correlated to, and therefore caused by, changes in the

independent variables. Firm size is included in model 3 and 4 of the regressions. Table 56

shows that firm size has a positive ß-coefficient in model 3 (Model 3: ß=0.172 P>0.1) and a negative ß-coefficient in model 4 (Model 4:ß=-0.530 P>0.1). Firm size is not significant in both models and therefore changes in the quality of strategic risk disclosure are not caused by changes in firm sizenot testable. The models show that firm size is not positively or

Met opmerkingen [JE|T24]: Graag wat uitgebreider toelichten: wat is omitted variable bias en waarom is dat in dit onderzoek een risico?

Met opmerkingen [JE|T25]: Idem vorige opmerking. En wat is een linearity problem?

Met opmerkingen [JE|T26]: Idem vorige opmerking

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negatively related with the quality of strategic risk disclosure. Therefore hypothesis 1 is

cannot be assumed. Table 65 shows that GENDER gender diversity has a positive ß-coefficient in model 2 (Model 2: ß=3.999 P<0.1) and a positive ß-coefficient in model 4 (Model 4: ß=4.335 P<0.05).

Gender is significant in both models. and therefore testablTherefore, changes in the quality of strategic risk disclosure are caused by changes in gender diversity within the board of directors. Because of the positivee.ß-coefficients, an increase in gender diversity will lead to an increase in the quality of strategic risk disclosure. An increase of 4 percent in gender diversity will lead to an increase of 1 in the quality of strategic risk disclosure for model 2 and an increase of 4.3 percent for model 4. The adjusted R-squares are low, but still significant.

Therefore hypothesis 2 can be assumed. The results are in line with hypothesis 2, which expected a positive relation between gender diversity and the quality of strategic risk disclosure.

Table 65 shows the research and development costs to be significant at the 5 percent level in all the models. The models show no big differences in the ß-coefficients (Model 1: ß=1.104 P<0.05; Model 2: ß=1.017 P<0.05; Model 3: ß=1.068 P<0.05; Model 4: ß=1.122 P<0.05) and are all positive. The research and development cost do have a positive relation with the quality of strategic risk disclosure. Table 56 shows profitability to be positive and significant in all the models (Model 1: ß=2.133 P<0.05; Model 2: ß=1.846 P<0.10; Model 3: ß=2.176 P<0.05; Model 4: ß=1.707 P<0.10). The models show no big differences in the ß-coefficients. Profitability of a firm has a positive relation with the quality of strategic risk disclosure. Table

65 shows growth only significant in model 1 (ß=0.262 P<0.05). Leverage and return on equity are not significant. No causal relation between these control variables and the quality of strategic risk disclosure exists.

Additional analysis

The previous literature has shown that firm size can be measured in different ways. The research used the total assets to measure firm size. The OLS regression was re-performed with the sales of the firms instead of the total assets in order to measure firm size. A logarithm was used and the data was collected through ORBIS. Table 67 shows the results of the regression. The resultis show a slight increase in the quality of the model compared to the regression with firm size measured as total assets, since the adjusted R-square and the F-values slightly increased. Furthermore, table 66 shows that firm size measured as a logarithm of the sales is

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significant in the models. The relation with the quality of strategic risk disclosure is negative, but the relation is testable. Following table 67, hypothesis 1 cannot be assumed, since the ß-coefficients (Model 1:ß= -1.340 Model 2: P<0.1, ß=-1.355 P<0.1) are negative. Profitability is significant in model 1 and model 2 of the regression. Therefore, changes in the quality of strategic risk disclosure are caused by changes in firm size measured as the sales of a firm. Because of the negative ß-coefficients, an decrease in firm size will lead to an increase in the quality of strategic risk disclosure. An decrease of 1.34 percent in firm size will lead to an increase of 1 in the quality of strategic risk disclosure for model 2 and an decrease of 1.35 percent for model 2. These finding are not in line with the expected relation, because a positive relation was expected. Therefore, hypothesis 1 cannot be assumed. Compared with the regression with firm size measured as a logarithm of total asset, profitability shows a less strong relation with the SQRDquality of strategic risk disclosure for the regression with firm size measured as sales of the firm. The models where firm size is used (model 3 and model 4) show that profitability is not significant anymore. Therefore profitability is not considered to have a causal relation with the SQRDquality of strategic risk disclosure. Profitability is not causing changes in the quality of strategic risk disclosure. The other results of the regression are comparable to the regression with firm size measured as total assets.

To check for differences in the relation between the quality of strategic risk disclosure and the variables for between thedifferent separate continents, the OLS regression, using the full model with all variables, (full model) was re-performed for the USA, UK and EU. Table 78

shows that firm size has different results between the continents. For the OLS regression related to the USA, firm size has a negative significant relation with the quality of strategic risk disclosure (ß= -2.656 P<0.01). Therefore, changes in the quality of strategic risk disclosure are caused by changes in firm size measured as the total assets of a firm. Because of the negative ß-coefficient, an decrease in firm size will lead to an increase in the quality of strategic risk disclosure. An decrease of 2.65 percent in firm size will lead to an increase of 1 in the quality of strategic risk disclosure for the USA. These finding are not in line with the expected relation, because a positive relation was expected. Hypothesis 1 cannot be assumed for the USA. The UK shows a negative and not significant relation with the quality of strategic risk disclosure (ß= -1.975 P>0.1). Because the relation is not significant, firm size measured as total assets of a firm is not considered to affect the quality of strategic risk disclosure for the UK. and Tthe EU shows a positive significant relation (ß= 3.973 P<0.01).

Therefore, changes in the quality of strategic risk disclosure are caused by changes in firm

heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto heeft opmaak toegepast: Tekstkleur: Auto

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size measured as the total assets of a firm. Because of the positive ß-coefficient, an increase in firm size will lead to an increase in the quality of strategic risk disclosure. An increase of 3.97 percent in firm size will lead to an increase of 1 in the quality of strategic risk disclosure for the USA. These finding are in line with the expected relation, because a positive relation was expected. Hypothesis 1 can be assumed for the USA. Gender diversity only shows a significant relation, which is positive, in the EU sample (ß= 12.706 P<0.01). So, changes in the quality of strategic risk disclosure are caused by changes in gender diversity within the board of directors. Because of the positive ß-coefficient, an increase in gender diversity will lead to an increase in the quality of strategic risk disclosure. An increase of 12.7 percent in gender diversity will lead to an increase of 1 in the quality of strategic risk disclosure for the USA. These finding are in line with the expected relation, because a positive relation was expected. Hypothesis 2 can be assumed for the EU. For the UK and USA, hypothesis 2 cannot be assumed. Furthermore, the research and development costs are not significant in the EU (P>0.1), but are significant for the other continents.and the pProfitability is only significant in the EU (P<0.05). The other control variables are not significant for the separate continents and are therefore considered to not cause changes in the quality of strategic risk disclosure.

Met opmerkingen [JE|T28]: Dit mag wel wat korter: je moet vooral uitleggen waarom je deze aanvullende analyses hebt gedaan en kan dan volstaan met de bevindingen (dus zonder steeds de sjabloonmatige herhaling van parameters en cijfers), omdat de methode duidelijk is op basis van het voorafgaande. Wel weer interessant zijn mogelijke verklaringen als je in deze analyses wel significante relaties vindt.

heeft opmaak toegepast: Tekstkleur: Lichtgroen

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Conclusion and discussion

In this research IiI investigated the relation between the quality of strategic risk disclosure with and firm size and gender diversity within the board of directors. Based on the literature,

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31 firm size and gender diversity are expected to be positively related with the quality of strategic risk disclosure.

An increase in firm size was expected to cause an increase in the quality of strategic risk disclosure, because larger organizations are able to adopt more complex administration systems, able use economies of scale in disclosing about strategic risks, susceptible to lawsuits because of insufficient strategic risk disclosure, audited by higher quality auditors and face incentives to disclose about strategic risks. The threat of imitation of risk disclosure practices by competitors was not expected to outweigh the reasons to disclose about strategic risks.

The main results entailed that changes in firm size is are not causally causing changes in the quality of strategic risk disclosure.related to the quality of strategic risk disclosure. The observed relations differ and no clear distinctions regarding the relation can be made.

Therefore firm size is not considered to have a statistical relation with the quality of strategic disclosure and the first hypothesis cannot be assumed. The insignificant relation can be explained by the method of measurement. AAn additional tests is was performed, where firm size is was measured with a logarithm of the sales instead of a logarithm of the total assets. The test shows that an decrease in there is a causal relation between firm size will improve the and the quality of strategic risk disclosure, but the relation is still negative. Following this model we cannot assume hypothesis 1, because a decrease in firm size causes an increase in the quality of strategic risk disclosure. This is contradictory towards the expected relation.

The recent literature found no negative relation between firm size and the quality of risk disclosure (Zadeh & Eskandare, 2012). The findings of this research may not fit the recent literature, because the focus in this research lays on the strategic aspect of the quality of risk disclosure. To the best of my knowledge, no studies exist that investigate the relation between firm size and the quality of strategic risk disclosure and therefore the results are hard to compare. An increase in the quality of strategic risk disclosure caused by an decrease in firm size can be explained by the threat of imitation of strategic risk disclosure practices by competitors. Larger firms will lower the quality of their strategic risk disclosure in order to sustain their competitive advantages regarding strategic risk management. Smaller firms do not have these competitive advantages and face less pressure from the threat of imitation. Because of that, smaller firms are more willing to disclose about strategic risks in order to