The perception of financial analysts on risk, risk management, and internal control disclosure: Evidence from Belgium and Italy

In this study, we investigate how and to what extent financial analysts in Belgium and Italy take into account information about risks, risk management, and internal control disclosed by companies in their analyses. We also investigate what they consider to be the drivers for companies to disclose this kind of information, and their perception of the regulatory disclosure requirements. The findings of this study come from 14 semi-structured in-depth interviews with analysts in both countries. The findings show that analysts pay greater attention to information on individual risks than that regarding risk management and control systems, perceiving the latter to be too generic. The extent to which they take into account public risk disclosure depends on the detail, customization, and future orientation of the reporting. Analysts typically include risk information in their cash flow forecasts, believing that risk disclosure strengthens a company's reputation as it creates transparency and reinforces trust. Companies also tend to avoid surprises and use risk disclosures as an alternative to profit warnings. The analysts in our study agree that legal requirements do not ensure the value of the information because they often lead to boilerplate disclosure, leading to less transparency, less relevance, and lower information quality.