The Effect of Oil and Gas Producers' FRR No. 48 Disclosures on Investors' Risk Assessments

We hypothesize that oil and gas producers' sensitivity and value-at-risk (VAR) disclosures, mandated by SEC Financial Reporting Release Number 48 (FRR No. 48), convey useful information to investors about commodity betas (defined as the sensitivity of firms' equity price changes to commodity price changes). Consistent with the hypothesis, we find that first-time sensitivity and VAR disclosers experience greater commodity beta shifts at 10-K filing dates than do nondisclosing firms in a matched control sample. To enhance confidence that the observed shifts are associated with FRR No. 48 disclosures, we repeat the analyses in the year before the release was effective, when firms did not disclose sensitivity or VAR. At the prior year 10-K filing dates, we find that firms in the disclosure sample do not exhibit significant commodity beta shifts. We conclude that the results are consistent with FRR No. 48-mandated sensitivity and VAR disclosures providing useful information to investors.