Post by Van Daelen on Jan 14, 2009 22:01:39 GMT 4
Risk Management Solutions in Business Law: Prospectus Disclosure Requirements
Marijn Van Daelen
Tilburg University - Faculty of Law
October 21, 2008
Abstract:
Risk management provisions can be divided into provisions that require companies to have risk management systems in place, provisions that require the disclosure of information on such systems, and provisions that require the disclosure of information on actual risks. Disclosure requirements have necessitated including information on corporate risks in such documents as the annual report, quarterly reports, and the prospectus. The prospectus plays a pivotal role in attracting capital from public investors. This paper focuses on information disclosure requirements on risk management in the prospectus. In more detail, this paper discusses which information companies should disclose to comply with these requirements. A generally neglected issue is that prospectus liability could be triggered by giving either too little information or too much information. Information overload and boilerplate text can obscure the main risks. Both might be qualified as misleading information. Analysing prospectuses, this paper shows that it could be debated whether the actual reporting complies with Directive 2003/71/EC and Commission Regulation 809/2004 regarding information on risks disclosed in prospectuses. A safe harbour could, however, be reached by adequately balancing the information disclosure on risks. To determine the minimum information on risks that should be disclosed in prospectuses, the four-step method presented in this paper could be used. These steps are: (1) identifying risks with a material adverse effect on a company and its securities; (2) classifying risks based on their probability and impact; (3) allocating risk responses; (4) and selecting the minimum information that should be disclosed. By using this method, companies can provide sufficient and objective investor information. Finally, this paper concludes with the improvements to be gained applying the four-step method instead of the actual ad hoc method.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1287624_code702392.pdf?abstractid=1287624&mirid=3
Marijn Van Daelen
Tilburg University - Faculty of Law
October 21, 2008
Abstract:
Risk management provisions can be divided into provisions that require companies to have risk management systems in place, provisions that require the disclosure of information on such systems, and provisions that require the disclosure of information on actual risks. Disclosure requirements have necessitated including information on corporate risks in such documents as the annual report, quarterly reports, and the prospectus. The prospectus plays a pivotal role in attracting capital from public investors. This paper focuses on information disclosure requirements on risk management in the prospectus. In more detail, this paper discusses which information companies should disclose to comply with these requirements. A generally neglected issue is that prospectus liability could be triggered by giving either too little information or too much information. Information overload and boilerplate text can obscure the main risks. Both might be qualified as misleading information. Analysing prospectuses, this paper shows that it could be debated whether the actual reporting complies with Directive 2003/71/EC and Commission Regulation 809/2004 regarding information on risks disclosed in prospectuses. A safe harbour could, however, be reached by adequately balancing the information disclosure on risks. To determine the minimum information on risks that should be disclosed in prospectuses, the four-step method presented in this paper could be used. These steps are: (1) identifying risks with a material adverse effect on a company and its securities; (2) classifying risks based on their probability and impact; (3) allocating risk responses; (4) and selecting the minimum information that should be disclosed. By using this method, companies can provide sufficient and objective investor information. Finally, this paper concludes with the improvements to be gained applying the four-step method instead of the actual ad hoc method.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1287624_code702392.pdf?abstractid=1287624&mirid=3