IUP Journal of Corporate Governance 10, No. 2 (2011): 37


INSTITUTIONAL INVESTORS AND BOARD OF DIRECTORS' MONITORING ROLE ON RISK MANAGEMENT DISCLOSURE LEVEL IN MALAYSIA

Rosnadzirah Ismail and Rashidah Abdul Rahman

Abstract

The growing number of cases of irregularities in the corporate world has led the public to demand for more disclosure on non-financial aspects (Amran et al., 2009), including risk reporting. The corporate governance literature suggested that the level of risk disclosure is associated with corporate governance mechanisms such as institutional investors (Solomon et al., 2000; and Abraham and Cox, 2007) and board characteristics (Dionne and Triki, 2005; and Abraham and Cox, 2007). The institutional investors are classified into pressure insensitive and pressure sensitive, while board characteristics refer to non-executive directors, directors' education and directors' experience. The analysis on a sample of 124 companies over a three-year period, from 2006 to 2008, shows that the risk management disclosure level in Malaysia is relatively low indicating that there is room for improvement. This study provides evidence that institutional investors (sensitive and insensitive) play a more effective role in monitoring the company's risk management disclosure compared to the board of directors. The results also show that directors' education is the only attribute associated with risk management disclosure.