Publication in Energy Economics

Dr. Thomas Walther has published a new article in Energy Economics titled “Let’s talk about risk! Stock market effects of risk disclosure for European energy utilities”. The article emerged in collaboration with Dr. Maximilian Düsterhöft and Prof. Dr. Frank Schiemann.

The authors analyze how risk reporting by European energy utilities is related to uncertainty about firms’ future prospects. Using an unsupervised machine learning topic model, the authors classify the content of the risk reports presented in the notes to the financial statements into different risk topics over the period from 2007 to 2017. They find that more risk reporting is related to lower idiosyncratic volatility.  This relation is especially evident for reporting about credit risk, risk management processes, economic risk, and accounting-related risk. Also, the authors find a positive association between risk disclosure and firm value since risk disclosure lowers uncertainty. The study contributes to the call for more transparency in risk reporting and disclosure. Interestingly, the authors could not identify a climate-related risk topic. Even after a manual search, they did not find an explicit disclosure of climate-related risks, even though the energy sector might be strongly affected by it. The study’s findings suggest that transparency is beneficial, so more risk disclosure, especially of climate-related risks, seems reasonable.