Institutional ownership and the qualitative informativeness of market risk disclosures

The attributes of market risk disclosure (Item 7A) have received increasing attention in the last two decades, especially after the U.S. Securities and Exchange Commission (SEC) calling for further discussions on the usefulness of current market risk disclosure and on strategies to improve their informativeness. By exploring the reason that firms voluntarily provide more informative market risk disclosures, we document that institutional ownership plays an important role in enhancing readability and consistency. Based on the heterogeneous nature of institutional investors, we find that short-term institutional ownership is positively related to the readability of market risk disclosure, and investors’ independence accounts for both readability and consistency. Our additional analyses indicate that the readability is primarily driven by institutional investors’ information demands and that the consistency is attributed to monitoring effects.