Risk reporting and earnings smoothing: signaling or managerial opportunism?

Purpose The purpose of this study is to examine the association between two reporting mechanisms used by managers communicate risk information capital market: disclosure and earnings smoothing. Design/methodology/approach This juxtaposes competing hypotheses, “opportunistic” “signaling”, empirically investigates whether one dominates other for a sample large UK firms period 2005–2015. also uses global financial crisis as an arguably exogenous shock on overall in economy investigate its effect managers' joint use textual disclosures Findings finds that smoothing are negatively associated. finding supports with incentives mask firm’s true underlying through provide lower levels risk-related disclosures. documents trade-off more pronounced during than before after period. Further, demonstrates negative higher volatility cash flows. robust various model specifications, additional corporate governance related controls alternative measure Originality/value findings new empirical evidence about support opportunistic hypothesis, especially when faced increased risk.