*6.3. Financial Risk Category Selection*

We examine the sections of annual reports covering information on risks and uncertainties in the managemen<sup>t</sup> report and notes to the financial statements on risk managemen<sup>t</sup> of each sample company—looking exclusively at financial risks. Specifically, we focus on financial risks only and not general risks (operational, strategic, and context-related). Finally, we identify categories of financial risks for the sample firms. Accordingly, we have the following five categories of financial risk: capital structure risks, credit risks, liquidity risks, exchange risks, and interest rate risks. All five types of these financial risks were considered in the construction of the financial risk disclosure index presented in Section 6.5. For example, if a company incurred a currency risk, we included such risk in the calculation of the financial risk disclosure index (FRDI).

### *6.4. Item Selection for Financial Risk Description*

After selection of categories of financial risk, we prepare a set of items or disclosure identifiers (grid risk report—GRR). Our GRR contains the most significant items for each risk category and we have chosen those items that a firm should specify to provide adequate information on that risk. To obtain a common framework that would allow us to study how and when the sample firms report on their financial risks, we consider only the most significant items that are described by a substantial number of firms, which is at least 10% of the sample companies. Accordingly, we compare all the items and give an importance rating of 10% following the study of Lombardi et al. (2016). Thus, if an item is recorded by at least 5 out of 48 companies, the item is considered significant and has been included in the general framework. At the end of this procedure, we construct our GRR, which is presented in Table 1. The number of items in each category vary as we find seven items for credit risks, six for liquidity risk, four for currency risk, four for interest rate risks, six for capital structure risk, and three for general items. Thus, the overall financial risk disclosure index is composed of a total of 30 items.
