Document Type : Original Research


1 Department of Accounting, Shandiz Institude of Higher Education, Mashhad, Iran

2 Supreme Audit Court of Iran, Mashhad, Iran


Risk disclosure refers to providing information to the user to inform of any opportunities or threats .Theoretically, disclosure mainly aims to reduce the information asymmetry as well as investor uncertainty, thereby indirectly lowering the equity cost. An advantage of risk disclosure is its effectiveness in reducing the equity cost. Therefore, risk disclosure can help decrease investor uncertainty, thus diminishing the equity cost. This project mainly investigates the relationship between risk reporting and cost of capital in 174 firms listed on the Tehran Stock Exchange for the period 2012-2018. This is an applied research study in terms of purpose and descriptive-correlational in terms of methodology. In this study, the variable of risk disclosure was collected by analyzing the content of financial statements, explanatory notes, and board of director reports. The cost of capital was calculated in three ways: cost of debt, cost of ordinary shares, and weighted average cost of capital (WACC). Thus, the relationship between risk disclosure and cost of capital was examined in the form of three individual hypotheses. The results demonstrated no significant relationship between risk disclosure and cost of debt; therefore, the first hypothesis is rejected. It was also suggested that there is a statistically significant negative relationship between risk disclosure and cost of common equity; thus, the second hypothesis was confirmed. Finally, risk disclosure appeared to have a statistically significant negative relationship with WACC; therefore, the third hypothesis was confirmed.


Main Subjects


©2021 The author(s). This is an open access article distributed under the terms of the Creative Commons Attribution (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, as long as the original authors and source are cited. No permission is required from the authors or the publishers.

Abraham, S., & Cox, P. (2007). Analyzing the determinants of narrative risk information in UK FTSE 100 annual reports. British Accounting Review. 39(3), 227-248.
Ahmadzadeh, D., Badavarnehndi, Y., & Hassanzadeh Brothers, R. (2013). Relationship between qualitative characteristics of auditing and equity cost. First National Conference on Accounting and Management.
Anagnostopoulou, S., & Tsekrekos, A. (2014). Seraina C. Accounting quality, information risk and implied volatility around earnings announcements. Journal of International Financial Markets, Institutions and Money, 34, 188-207.
Bao, Y., & Datta, A. (2014). Simultaneously discovering and quantifying risk types from textual risk disclosures. Management Science, 60(6), 1371–1391. doi:
Biddle, G. C., Z. Ma, M., & Song, F. M. (2010). Accounting Conservatism and Bamkruptcy risk. The Journal of Accounting, Auditing, and Finance. doi:
Campbell, J. Y., Hilscher, J., & Szilagyi, J. (2008). In search of distress risk. Journal of Finance, 63(6), 2899-2939. doi:
Chang, B., Christoffersen , P., & Jaco, K. (2013). Market Skewness Risk and the Cross section of Stock Returns. Journal of Financial Economics, 107(1), 46-68. doi:10.1016/j.jfineco.2012.07.002
Charitou, A., Lambertides, N., & Trigeorgis, L. (2015). Charitou, A.; Lambertides, N. and Trigeorgis, L. Distress Risk, Growth and Earnings Quality. Abacus,. 47(2), 158-181. doi:10.1111/j.1467-6281.2011.00337.x
Clarkson , M. (2008). A Risk Based Model of Stakeholder Theory. The Centre for Corporate Social Performance & Ethics, 20, 92-117. Retrieved from
Dario, C. (2014). Political A_liation and Risk of Default: Are Republicans or Democrats More Fiscally Responsible?
Davies, J., Moxey, P., & Welch, I. (2010). Risk and Reward: Tempering the Pursuit of Profit. The Association of Chartered Certified Accountants, London.
Desender, K. (2007). On the Determinants of Enterprise Risk Management Implementation. Enterprise IT Governance, Business Value and Performance Measurement. doi:10.4018/978-1-60566-346-3.ch006
Easley, D., & Hara, M. (2005). Information and the cost of capital. Journal of Finance. doi:
Elshandidy, T., & Neri, L. (2015). Corporate Governance, Risk Disclosure Practices, and Market Liquidity: Comparative Evidence from the UK and Italy. Corporate Governance, 23(4), 331–356. doi:
Elshandidy, T., Fraser, I., & Hussainey, K. (2013). Aggregated, voluntary, and mandatory risk disclosure incentives: Evidence from UKFTSE all-share companies. International Review of Financial Analysis, 30, 320–333. doi:
Fama, E., & French, K. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 331, 3-56.
Feng, L., Indra, A., & Shiguang, M. (2014). The Effect of Financial Status on Earnings Quality of Chinese-Listed Firms. Journal of Asia-Pacific Business, 15, 4-26. doi:
Florio, C., & Leoni, G. (2016). Enterprise risk management and firm performance: The Italian case. The British Accounting Review, 49(1), 56-74. doi:
Iqbal, J., Strobl, S., & Vähämaa, S. (2015). Corporate Governance and the Systemic Risk of Financial Institutions. Journal of Economics and Business, 82, 42-61. doi:
Jang, B.-G., Rhee, Y., & Yoon, J. (2016). Business cycle and credit risk modeling with jump risks. Journal of Empirical Finance, 39, 15-36. doi:DOI: 10.1016/j.jempfin.2016.08.001
Khandelwal, C., Kumar, S., Madhavan, V., & Pandey, N. (2020). Do board characteristics impact corporate risk disclosures? The Indian experience. Journal of Business Research, 121, 103-111. doi:10.1016/j.jbusres.2020.08.004
Khodamipour, A., Hosseini Nasab, H., & Hayati, H. (2015). Impact of Error of Prior-Period Earnings Forecast on Market Reaction to Management Earnings Forecast, and Different Types of Earnings Management. 83-108. doi:
Kiani, T., Fareed, D., & Sadeghi, H. (2015). The Measurement of Risk based on the Criterion of Value at Risk via Model of GARCH A Study of Stock of Liste d Companies in Tehran Stock Exchange TSE in the Cement Industry. Journal of Financial Management Strategy, 3(10).
Kim, J.-B., & Zhang, L. (2017). Accounting conservatism and stock Price crashrisk: Firm-levelevidence. Contemporary Accounting Research, 1(33), 412-441. doi:
Kim, O., & Verrecchia, R. (1994). Market liquidity and volume around earnings announcements. Journal of Accounting and Economics, 1(7), 41-67. doi:
Kollmann, R. (2016). International business cycles and risk sharing with uncertainty shocks and recursive preferences. . Journal of Economic Dynamics and Control, 72, 115-124. doi:10.1016/j.jedc.2016.03.005
Korteweg, A., & Nagel, S. (2016). Risk-adjusting the returns to venture capital. Journal of Finance, 713, 1437-1470. doi:
Kravet, T., & Muslu, V. (2013). Textual risk disclosures and investors’ risk perceptions. Review of Accounting Studies, 184, 1088–1122.
Lajili, K., & Zeghal, D. (2005). Lajili, K., & Zeghal, D, (2005), A Content Analysis of Risk Management Disclosures in Canadian Annual Reports, Canadian. Journal of Administrative Sciences, 22, 125–142. doi:10.1111/j.1936-4490.2005.tb00714.x
Linsmeier, T., Thornton, D., Venkatachalam, M., & Welker, M. (2002). The effect of mandated market risk disclosures on trading volume sensitivity to interest rate, exchange rate and commodity price movements. Accounting Review, 77(2), 343-377.
Malafronte, I., Grazia Starita, M., & Pereir, J. (2017). The Effectiveness of Risk Disclosure Practices in the EuropeanInsurance Industry. Review of Accounting and Finance. doi:
Mehrabanpour, M., & Sadat Mir, F. (2018). The Impact of Corporate Governance Index on Capital Cost and Systematic Risk. Empirical Research in Accounting, 8(1), 227-245.
Nikbakht, M., & Taheri, Z. (2014). Investigating the relationship between corporate governance mechanisms and systematic risk. Accounting and Auditing Reviews. 21(1).
Ramzanpoor, E., Gholizadeh, M., & Hajar, P. (2017). Investigating the effect of corporate governance mechanisms on the risk-taking behavior of companies listed on the Tehran Stock Exchange. JOURNAL OF MONETARY & FINANCIAL ECONOMICS, 24(13), 124-149.
Richardson,A. and M.Welker. (2001). Social disclosures, financial disclosures and The cost of equity capital.26 (7&8).Accounting ,Organizations and Society. 26(7-8), 597-616. doi:10.1016/S0361-3682(01)00025-3
Rossi, F., & Agus Harjoto, M. (2020). Corporate non-financial disclosure, firm value, risk, and agency costs: evidence from Italian listed companies. Review of Managerial Science, 14(5), 1149-1181.
Schrand, C., & Elliott, J. (1998). Risk and financial reporting: a summary of the discussion at the 1997 AAA/FASB conference. Journal of Accounting Literature, 12.1998, 3, 271–282. doi:10.1016/j.acclit.2017.12.001
Semper, D., & Beltrán, J. (2014). David Cabedo Semper (2014). Risk disclosure and cost of equity The Spanish case. Fecha de aceptaction.
Setayesh, M., Kazem Nejad, M., & Zolfaghari, M. (2011). Study of the effect of disclosure quality on stock liquidity and capital expenditure of companies listed on the Tehran Stock Exchange.
Shivaani, M., & Agarwal, N. (2020). Does competitive position of a firm affect the quality of risk disclosure? Pacific-Basin Finance Journal, 61.