FINANCIAL INSTRUMENTS DISCLOSURE AND RISK: EVIDENCE IN PUBLIC COMPANIES BEST TRADED IN BM&FBOVESPA

Abstract

The study aims to analyze the connection between mandatory disclosure level of risks arising from financial instruments and the extent of Brazilian public companies risk under the hypothesis that highest disclosure implies lower risk of perception by investors. The sample was composed by BM&FBovespa public companies best traded, limited to the 42 that released the information demanded by the research. The disclosure level was estimated by index based on CVM Resolution 684/12 requirements. The perception of risk was measured by Financial Leverage Ratio, Value-at-Risk and Sharpe Ratio. The mandatory disclosure was accomplished, on average, by 61% of firms, despite their report obligation. Recommended qualitative information was disclosed more frequently than required quantitative assessments. By multiple linear regression estimated by OLS, we were able to reject the formulated hypothesis, highlighting the larger impact on indexes in firms with high levels of derivatives and financial instruments utilization. This study may contribute to explain the connection among financial instruments disclosure and company risk perception, providing the investors and regulators with evidences that the market faces low level of financial instruments disclosure, and this can contribute to affect firms’ perception of risk level by investors.