Oehler, A., Neuss, C., 2025, The effect of risk management disclosure on idiosyncratic risk: evidence from annual reports, Review of Managerial Science, 10.1007/s11846-025-00944-4.

Abstract
In this study, we analyze annual reports to explore the relationship between firms'
risk management disclosures and idiosyncratic risk, measured as idiosyncratic volatility (IVOL). Our analysis focuses on companies listed on the German CDAX index over the period from 2002 to 2020. The findings reveal that companies which
disclose comprehensive details about their engagement in the cybernetic cycle of
risk management experience a notable decrease in IVOL in the following year. This
study also includes an analysis with a subset of firms that have reported the adoption of an enterprise risk management (ERM) system. The study does not support a negative relationship between the disclosure of ERM and IVOL. Our results suggest that the stock market places greater value on disclosures related to specific risk adjustment strategies and risk control rather than on the adoption of an organizational risk management framework as the modern ERM framework. This highlights the value of risk management disclosure and especially the importance of the risk management process, which is relevant for managers, stakeholders, regulators as well as for investors.

Keywords

Risk management disclosure, Idiosyncratic risk, Idiosyncratic volatility, Company risk management

JEL Classifications

G30, G32, D83