*6.5. Financial Risk Disclosure Index*

A financial risk disclosure index (FRDI) is constructed as a benchmark for measuring the level of financial risk disclosure by the listed companies. We apply our GRR model to the annual reports of the sample companies for the study period. To examine the correspondence of the revealed disclosure with the GRR items, we estimate the disclosure index for each category of financial risk and an overall financial risk disclosure index. We assign scores to each item depending on the completeness of information held in the documents. If an item is expressed in a clear and systematic way, we assign a score of 1, otherwise a score of 0 is assigned when there is no qualitative or quantitative information about the item. The score obtained (equal to the sum of scores assigned to the various items that compose the risk) is compared with the maximum score, equal to the total number of items belonging to the risk being analyzed. To estimate the disclosure index for the risk examined, we use the following formula.

$$\text{if } 0 \le \text{FRDI} \text{j} = \frac{\text{Score obtained from the jth company}}{\text{Maximum possible score}} \le 1.1$$
