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There is huge potential for China to transform and upgrade its traditional manufacturing sector, and high-tech enterprises in manufacturing industries stand out. This study contributes to the literature on how venture capital affects technology-based Enterprises’ IPO by evaluating the characters between the two parties. According to the symmetric information theory, certification theory and enterprise property rights theory, the first round of risk financing enterprises from 2010 to 2019 is taken as a research sample to empirically analyze the impact of venture capital and corporate growth on firm listing events. The results show that the investment experience of venture capital institutions, when matched appropriately to firms’ specific growth, will facilitate and accelerate the IPO process. Thus the matching degree between the two are significantly positively related to the company's IPO. Under the premise of low growth of the company, venture capital has a significant impact on the listing of the company. As the growth of the company increases, the impact of venture capital on the listing of the company is gradually reduced. Venture capital institutions with overseas backgrounds are more inclined to promote the IPO of invested international companies. Finally, we discuss the implications based on the results of the empirical analysis, and make suggestions for venture capital institutions and companies.

The article is devoted to the development of instruments for catastrophe risk financing. The state of the global market for disaster risk financing is analyzed in order to identify the main development trends and the possibilities of using conceptual approaches in the Russian practice of the financial market. It is proven that the development of the catastrophe bond market has prospects in conditions of permanent instability, since catastrophe bonds are unique and highly attractive due to the lack of correlation with macroeconomic events. It is suggested that the instruments of catastrophe risk financing can be considered in the context of the development of sustainable finance. The paper identifies the main problems slowing down the development of the Russian catastrophe bond market, and formulates proposals aimed at developing the market for insurance-linked securities (ILS) in the Russian Federation. Pilot CAT bonds emission prospectuses should be based on structured bonds, with elements of a subordinated bond. There is a need to introduce into the Russian legal field a term defining ILS as a category. It is proposed to register special purpose vehicles (SPVs) and catastrophe funds in Russian offshores. The Russian analogue of catastrophe funds should be a closed-end investment fund with high funding for qualified investors. It is proposed to update the formula for calculating the creation of and the procedure for using reserve funds, in particular with the use of catastrophe risk financing tools. A pilot issue of CAT bonds is proposed to be conducted on behalf of VEB.RF, as bonds sponsoring regions exposed to high natural risks. In the process of developing socially responsible investor practice and tools for socially responsible investments, it is suggested to establish a Russian “Green Index” and to create green ETFs in Russia. Due diligence (DD) approaches are recommended for decisions on issuing catastrophe bonds.

This study aims to find out, test, and prove the influence of sharia financing on financing risk, financing performance, and zakat of Islamic Banks in Indonesia. This research uses a form of quantitative research with a type of exoplanet research. The sample of this study was 12 Islamic Banks in the period 2015-2019. The results of this study found scheme financing influence the risk of financing. Buying and selling financing affects the performance of financing, but not profit-share financing and ijarah financing obtained insignificant to the performance of financing. Buying and selling financing is not significant to zakat, while revenue-share financing and ijarah financing are significant to zakat. Financing risk significant to financing performance. Financing performance significant towards zakat. The findings of this study show that management should be able to manage to buy and selling financing, yield share financing, and ijarah financing to minimize financing risk. Management's ability to manage and minimize financing risks can improve financing performance so that increased financing performance will also increase the company's zakat. Management's ability to manage and minimize financing risks can improve financing performance so that increased financing performance will also increase the company's zakat.

In the broad sense, any action that is taken in the hopes of raising future revenue can also be considered an investment. An investment always concerns the outlay of some asset today – money or tangible and intangible assets – in hopes of a greater payoff in the future than what was originally put in. The investment compensates for the time of “freezing” of funds, as well as the risk taken in the investment process. Integral components in each investment process are: a) time (recovery of benefits and capital commitments); b) circulation (allocation of general or own capital); c) risk (possibility of excess of actually incurred expenses over planned costs); d) benefits (expected effects from investment realization). Investments can be defined in the light of the above factors, which are fraught with the risk of long-term allocation of investment costs in order to recover benefits. Investments are such expenditures of funds, in which there is a long-term commitment of funds of money. The scale of the costs of their performance is higher than in the current, operating activities of businesses, and the impact of investment on the efficiency of operations and competitiveness is mostly longer. Investments increase not only modernized and new means of durability, intangible and legal costs, but also the value of working capital. This work is devoted to presentation and analysis of the process of financing investments made through joint ventures in the realities of the free market in a changing environment. Considerable attention was paid to the assessment of risk and efficiency of enterprises activities. It was found that the amount of risk is influenced by various factors, such as the complexity of the investment process and the instability of the environment in which the project is implemented. This creates uncertainty about the expected future benefits and often makes it impossible to assess the factors that affect the return on investment.

This paper describes an equilibrium macro finance model where contracts are the mechanism by which differentially risk averse bondholders and stockholders resolve a conflict of interest problem and confront the risks associated with future operating decisions and financing decisions of a representative firm/economy. In resolving this conflict of interest problem the interrelated covenants in the financial contract shape certain stylized financial facts of business cycles ignored in Classical and Keynesian models. The model set-up includes 2 agents (bondholders and stockholders); 2 decisions (production-investment decisions generating operating income and operating risk) and (financial decisions generating financial risk); and 2 no-arbitrage equilibrium conditions (market value equals economic book value for both bonds and stocks). In this 2x2x2 set-up contract constrained managers of the representative firm make production-investment decisions that conform to the risk aversion of stockholders as reflected in stock prices, and then use financing decisions to offset any effect of a change in operating risk on the market valuation of bonds. In this model managers work for both stockholders and bondholders. Preliminary evidence from the U.S. non-financial corporate sector does not reject the predictions of the model. A similar form of risk and return sharing is shown to occur between more risk averse mature and experienced workers with seniority and less risk averse young apprentice workers.

Purpose Recent years saw a paradigm shift from ex post (reactive) to ex ante (proactive) approaches (e.g. insurance) to disaster risk financing for building resilience of communities in developing countries. To facilitate adoption, the approaches should be adapted so that they can be technically feasible and culturally desirable to the local context. This paper aims to report an exploratory study to elaborate the existing arrangements to deal with the impacts of disaster and the potential to shift to a more proactive disaster risk financing in Indonesia. Design/methodology/approach A series of stakeholder engagement activities in Semarang and Solo, Indonesia was conducted to ascertain the existing arrangements for disaster risk financing at local government level, the challenges/barriers to the adoption of insurance, education and policies to facilitate the transformation from reactive to proactive process. Thematic analysis was applied to transcribed conversations during interviews, focus groups and workshops. Identification of emerging issues/themes was also guided by the researchers’ notes during the events, and facilitated by qualitative analysis software, Atlas Ti®. This was complemented by an analysis of regulations and documents provided by the local stakeholders. Findings The local governments heavily rely on contingency fund, which is not enough and often significantly delayed to fund recovery and reconstruction of public infrastructure. The use of insurance is limited in both public and private sectors, particularly in the majority of low-income communities. Various barriers and challenges were identified under several categories, namely, institutional, cultural, affordability, lack of awareness and knowledge, insurance arrangement process and lack of trust. The findings also suggest that improving insurance education should involve multiple stakeholders, and both formal and informal routes should be pursued. Originality/value The research fills the gap of knowledge in disaster risk financing in the context of developing countries, specifically in local governments and communities in Indonesia. The findings may be replicable for other developing countries with low adoption of ex ante financial instruments for dealing with the impacts of disaster.

Climate risk financing programs in agriculture have caught the attention of researchers and policy makers over the last decade. Weather index insurance has emerged as a promising market-based risk financing mechanism. However, to develop a suitable weather index insurance mechanism it is essential to incorporate the distribution of underlying weather and climate risks to a specific event model that can minimize intraseasonal basis risk. In this paper we investigate the erratic nature of rainfall patterns in Kenya using Climate Hazards Group Infrared Precipitation with Station Data (CHIRPS) rainfall data from 1983 to 2017. We find that the patterns of rainfall are fractional, both erratic and persistent, which is consistent with the Noah and Joseph effects that are well known in mathematics. The erratic nature of rainfall emerges from the breakdown of the convergence to a normal distribution. Instead we find that the distribution about the average is approximately lognormal, with an almost 50% higher chance of deficit rainfall below the mean than adequate rainfall above the mean. We find that the rainfall patterns obey the Hurst law and that the measured Hurst coefficients for seasonal rainfall pattern across all years range from a low of 0.137 to a high above 0.685. To incorporate the erratic and persistent nature of seasonal rainfall, we develop a new approach to weather index insurance based upon the accumulated rainfall in any 21-day period falling below 60% of the long-term average for that same 21-day period. We argue that this approach is more satisfactory to matching drought conditions within and between various phenological stages of growth.

Αναπτύσσουμε ένα νεο-κεϋνσιανό (newKeynesian - ΝΚ) στοχαστικό δυναμικό μοντέλο γενικής ισορροπίας (dynamicstochasticgeneralequilibrium – DGSE) για να μελετήσουμε το ρόλο που έχει στον οικονομικό κύκλο η αλληλεξάρτηση μεταξύ της χρηματοοικονομικής διαμεσολάβησης (financial intermediation) και του κρατικού κινδύνου (sovereignrisk). Το μοντέλο μας συνθέτει τις κυρίαρχες σύγχρονες προσεγγίσεις σε δύο κατευθύνσεις της βιβλιογραφίας: των χρηματοοικονομικών τριβών (financial frictions) και του κινδύνου κρατικής πτώχευσης (sovereigndefault). Συγκεκριμένα, μοντελοποιούμε τις χρηματοοικονομικέςτριβές σύμφωνα με τους Bernanke κ.ά. (1999) και την πιθανότητα της κρατικής πτώχευσης χρησιμοποιώντας την ιδέα του στοχαστικού δημοσιονομικού ορίου των Bi και Traum (2012). Καταλήγουμε δε ότι, εφόσον υπάρχουν αλληλεπιδράσεις χρηματοοικονομικής διαμεσολάβησης και κρατικού κινδύνου, τότε μία αύξηση στον κίνδυνο της κεφαλαιακής επένδυσης (διαταραχή του επιπέδου κινδύνου), η οποία πηγάζει από τον χρηματοπιστωτικό τομέα, έχει ως αποτέλεσμα μία σημαντικά βαθύτερη ύφεση. Η ύφεση εξαρτάται σημαντικά από την προκυκλική/αντικυκλική πολιτική της κυβέρνησης σχετικά με τα απαιτούμενα κεφάλαια που διακρατεί για το πιθανό κόστος της διάσωσης του χρηματοπιστωτικού τομέα. Το παραπάνω αποτέλεσμα οδηγεί στα παρακάτω συμπεράσματα οικονομικής πολιτικής. Οι ευρωπαϊκές πολιτικές για τη διάσωση του χρηματοοικονομικού συστήματος έχουν χειροτερέψει την ύφεση. Εάν δεν υπάρξει κεντρικός ευρωπαϊκός μηχανισμός στα πλαίσια του EFSF/ESM που να χρηματοδοτεί απευθείας το τραπεζικό σύστημα το πρόβλημα θα εξακολουθεί να υπάρχει. Ο πολλαπλασιαστής των κρατικών δαπανών είναι μικρότερος όταν υπάρχει κρατικός κίνδυνος ευνοώντας πολιτικές οικονομικής λιτότητας.

Disaster Risk Financing (DRF) products strengthen the capacity of governments to take informed decisions on disaster risk finance based on sound actuarial exposure analysis in order to support stakeholders (national and local governments, homeowners, businesses, agricultural producers, and low-income populations) with better risk information and increase financial resilience. The objective of this work is to present the Landslide Hazard In formation System (LHIS) prototype aiming at responding to incipient likely landslide events (in Near-Real Time, NRT) and providing estimates of parameters suitable to inform parametric insurance calculations. LHIS concentrates on the development of databases, maps and understanding on pilot use cases in Morocco, making extensive use of EO data and advanced modelling capabilities.

The frequency and impact of disasters rise at the global scale, calling for effective disaster risk management and innovative risk financing solutions. Disaster Risk Financing (DRF) can increase the ability of national and local governments, homeowners, businesses, agricultural producers, and low-income populations to respond more quickly and resiliently to disasters by strengthening public financial management and promoting market-based disaster risk financing. For landslide events, the usage of DRF products is not yet extensive, mainly due to challenges in capturing the appropriate destabilization factors and triggers, as well as forecasting the physical properties of a landslide event (such as its type, location, size, number of people affected, and/or exposed infrastructure). The availability and quality of satellite EO derived data on rainfall that triggers landslides (Global Precipitation Measurement mission / GPM) and observations of the landslides themselves (Copernicus Sentinel radar and multispectral sensors, very high resolution -VHR- optical sensors) greatly improved in recent years. In the same time, effective models are refined and support near-real time landslide hazard assessment (e.g. Landslide Hazard Assessment for Situational Awareness / LHASA; Flow path assessment of gravitational hazards at a Regional scale / FLOW-R).The objective of this work is to present the prototype platform LANDSLIDE HAZARD INFORMATION SYSTEM (LHIS) which aims to support landslide DRF priorities using Earth Observation data and models. The functions of the platform are to be able to anticipate, forecast and respond to incipient landslide events (in Near-Real Time, NRT) by providing estimates of parameters suitable for parametric insurance calculations, including landslide inventories, susceptibility and hazard maps, potential damages and costs analyses. The LHIS prototype is accessible on the GEP / Geohazards Exploitation Platform allowing easy access, processing and visualization of EO-derived products. The prototype consists of three modular components with respectively: 1) a Landslide Detection component to create Landslide Inventories, 2) a Landslide Hazard Assessment component using global and national geospatial datasets leading to Landslide Susceptibility Maps, Scenario-based Hazard Maps and NRT Rainfall-based Hazard Maps, and 3) Landslide Impact Assessment component combining landslide hazard maps with population and infrastructure datasets to derive Landslide Exposure Maps and Landslide Impact Index. The landslide detection module is based on the analysis of time series of optical and SAR data; the landslide hazard and impact assessment modules are based on the LHASA, FLOW-R and PDI models.The information system is being developed and tested in Morocco in collaboration with the solidarity fund against catastrophic events (FSEC) and the World Bank for two contrasting use cases in the Rif area (North Morocco) and the Safi area (Central Morocco) exposed to various landslide situations occurring in different environmental and climatic contexts.

There are often early warning signs available prior to an extreme weather event taking place and these early warning signs provide a crucial window of opportunity to respond to and reduce both the potential impacts of an extreme weather event and disaster risks. There has been an emergence of innovative risk financing mechanisms providing financial security against disasters. This chapter will evaluate the use of innovative sovereign disaster insurance mechanisms for humanitarian intervention. It will give an overview of this type of risk financing instrument and its potential to incentivize risk management and build resilience against disasters. Also, this chapter will assess the role of the African Risk Capacity and in particular, focus on the case of Malawi when the country experienced extreme weather events in 2015/2016, to evaluate the effectiveness of this risk financing mechanism and the lessons that can be learned from the Malawi case.

The emergence of climate change issues and the impact they have on increasing the frequency and intensity of natural disasters require an approach that integrates resilience concerns into the economy. Thus, there is a need to identify the use of dedicated financial instruments that can help the society to efficiently and effectively recover in the aftermath of disasters. This research aims to identify the concept of Disaster Risk Financing (DRF) and identify different types of financial instruments, both traditional and innovative, that can be used to improve resilience of a society against natural disasters. The above aim is fulfilled by systematically reviewing available literature on the area. Findings of the systematic review presents conceptual definitions for DRF and a list of financial instruments that can be used to cover losses and economic damages at the aftermath of a disaster. Herein, the identification of actors, responsibilities of the actors, funding, initiatives following the Sendai Framework for Disaster Risk Reduction (DRR), and innovative solutions to engage the public and private sector are essential. Latter should be done in an integrated form in order to combine the strengths and omit the weaknesses of the two parties. Exploring the diverse forms of partnerships between the public sector and the private sector is also important to better illustrate DRF mechanisms.

Gedruckt erschienen im Universitätsverlag der TU Berlin, ISBN 978-3-7983-3220-1 (ISSN 1610-0158), From the perspective of a general contractor (GC), which seeks the overall responsibility for the completion of complex construction projects, the default of one of his subcontractors represents a major cost risk. This paper examines the optimal use of different security instruments to transfer a part of the cost risk from subcontractor default to external risk carriers. The security instruments considered are, on the one hand, bank guarantees or insurance bonds that are provided by the subcontractor to the GC as performance and warranty securities and, on the other hand, subcontractor default insurance (SDI), an insurance product that is still largely unknown in Germany but already established in the United States and that is directly bought by the GC from an insurer. To be able to quantify total cost of risk of the GC as a function of its use of the security instruments considered, the author describes a portfolio model that measures the cost risk from subcontractor default that is associated with a portfolio of subcontracts. Based on sample calculations, the portfolio model shows that subcontractor default insurance is a highly relevant security instrument for the risk financing of the GC. Subcontractor default insurance allows to selectively transfer the part of the cost risk to an insurer that can neither be covered by guarantees or bonds nor lends itself to be borne by the GC. Compared with the blanket use of performance and warranty guarantees that is still common practice in the German construction industry, a targeted use of security instruments that is deduced from the optimum level of risk transfer enables the GC to substantially increase the efficiency of its risk financing and hence to significantly reduce its expected total cost of risk., Aus Sicht eines Generalunternehmers (GU), der gezielt die Verantwortung für die Fertigstellung komplexer Bauprojekte übernimmt, stellt der mögliche Ausfall eines seiner Nachunternehmer (NU) ein erhebliches Kostenrisiko dar. In der vorliegenden Arbeit wird der optimale Einsatz verschiedener Sicherungsinstrumente zum Risikotransfer eines Teils des Kostenrisikos aus NU-Ausfall auf externe Risikoträger untersucht. Die betrachteten Sicherungsinstrumente sind einerseits Bürgschaften, die als Ausführungs- und Gewährleistungssicherheiten durch die NU gestellt werden, andererseits das in Deutschland noch weitgehend unbekannte, in den Vereinigten Staaten jedoch bereits etablierte Produkt der NU-Ausfallversicherung, die der GU direkt mit einem Versicherer abschließt. Um eine rechnerische Bestimmung der Gesamtrisikokosten des GU in Abhängigkeit seines Einsatzes der betrachteten Sicherungsinstrumente zu ermöglichen, beschreibt der Verfasser ein Portfoliomodell anhand dessen sich das Kostenrisiko aus NU-Ausfall eines Portfolios von NU-Verträgen bemessen lässt. Anhand von Beispielrechnungen lässt sich mit Hilfe dieses Portfoliomodells zeigen, dass NU-Ausfallversicherungen ein für die Risikofinanzierung der GU hochrelevantes Sicherungsinstrument sind. Sie ermöglichen es, gezielt den Teil des Kostenrisikos aus NU-Ausfall auf einen Versicherer zu transferieren, der sich weder durch Bürgschaften decken, noch durch den GU effizient selbst tragen lassen. Gegenüber dem in der deutschen Bauwirtschaft weiterhin üblichen pauschalen Einsatz von Ausführungs- und Gewährleistungsbürgschaften ermöglicht ein gezielter Einsatz der Sicherungsinstrumente, der aus dem optimalen Ausmaß des Risikotransfers abgeleitet ist, die Effizienz der Risikofinanzierung des GU erheblich zu steigern. Hierdurch kann eine deutliche Senkung erwarteten Gesamtrisikokosten des GU erreicht werden.

Insurance is a traditional means of risk financing. However, this insurance has limitations as a means of risk financing derived from its mechanism. This chapter outlines the limitations of insurance as a means of risk financing.

We introduce a new SAR-based flood extent mapping algorithm enabling systematic and automatic monitoring of water bodies at large scale in near real time. The algorithm is both efficient and robust, especially in areas where flood events are not sporadic but long lasting (e.g. monsoon-related floods). It is based on the regular processing of subsequently acquired pairs of Sentinel-1 images. The algorithm has been developed in the framework of the ESA-funded e-DRIFT project, with the aim to respond to the needs of the disaster risk financing sector in Southeast Asia. The approach has been validated after intensive testing over different areas of interest in South East Asia i.e. Myanmar and Laos, where risks associated with flooding are currently not well-known. Moreover, the algorithm is implemented on a virtual platform that efficiently handles large collections of Sentinel-1 data from all the orbits and dates available over areas of interest affected by floods. The output of this near real-time system are reliable and useful input data for the parametric modelling carried out by the (re-)insurance companies, allowing them to better anticipate risk of natural disasters.

We aim to extend the sparse knowledge on the financing dynamics of newly founded firms by investigating 2456 French manufacturing firms that were founded between 2004 and 2006. Our data comes from their legally required and reported financial statements. We observe significant heterogeneity in the financing decisions at foundation and analyze whether these differences widen or converge by using different convergence concepts. We consistently find β-convergence that indicates the initial financing decisions have a negative effect on the accumulation of this source of financing. After investigating the development of variation in financing patterns across firms over time (σ-convergence), we find mixed results. While differences in debt composition (e.g. role of trade credit, bank loans as well as relation between short and long-term debt) vanish over time the opposite is true for debt-equity mixes.

Reinsurance offers coverage for primary insurers and is available to back them up. Insurers have an increasing demand for more financial capacity when underwriting catastrophic risks. With respect to catastrophic risks, reinsurance’s role takes several forms. Reinsurance can take a significant portion of the insured losses from primary insurers, diversify catastrophe risks globally, supply underwriting assistance, and regulate insurers’ behavior to promote risk mitigation. These roles often go beyond risk transfer and risk financing and expand to risk regulation to primary insurers. The former role has been discussed at length in the law and economics literature, but regulation by reinsurance has not been widely discussed and has even qualified as problematic. Government-sponsored reinsurance, which marries the merits of both the government and private reinsurance, has gained increasing attention in the law and economics literature, and these programs have increased substantially in practice. Many countries use government-sponsored reinsurance to address catastrophe risks, including France (Caisse Centrale de Reassurance), Australia (Australian Reinsurance Pool Corporation), Japan (Japan Earthquake Reinsurance Co., Ltd.).This paper will mainly argue why government should adopt government-sponsored reinsurance and how to expand regulation by reinsurance to achieve optimal catastrophe risk management in China. The chapter begins by introducing basic principles of reinsurance. Next, the main regulatory techniques of reinsurance which offer primary insurers incentives to underwrite appropriately and mitigate risk are explored. Then, the reasons why the private reinsurance market cannot provide adequate coverage for catastrophe risks and the arguments for government-sponsored reinsurance are discussed. Next, several typical government-sponsored reinsurance programs are examined and compared, including programs in France (Caisse Centrale de Reassurance; CCR), Japan (Japanese Earthquake Reinsurance Scheme; JERS), and Turkey (Turkish Catastrophe Insurance Pool; TCIP), in which primary insurers are regulated by reinsurance. Finally, it is argued that China should adopt government-sponsored reinsurance to address catastrophe risks, and the possibility and feasibility of regulation by government-sponsored reinsurance in China is addressed.

This paper investigates whether FS affects bank liquidity risk. Using the Malaysian banking data sets, we compare the FS-liquidity risk relationships between the Islamic and conventional banking institutions. FSs are measured by real estate financing, financing concentration, short-term FS stability, and finally medium-term FS stability. Meanwhile, for liquidity risk measures, we adopt the BASEL III approach such as liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) in quantifying short- and long-term liquidity risk, respectively. The unbalanced static panel regressions of 27 conventional and 17 Islamic banks from 1994 to 2014 were analyzed to evaluate the relationships. Our results illustrate that increasing number of real estate financing and short-term FS stability of the Islamic banks may increase both their short- and long-term liquidity risks. On the other hand, even though real estate financing does not affect liquidity risks of the conventional banks, increasing short-term FS stability and financing specialization may increase their long-term liquidity risk. As the liquidity risk behavior, to some extent, differs between the two banking systems, we recommend the regulatory bodies and market players to develop a separate liquidity risk management framework for conventional and Islamic banking institutions.

This paper investigates the impact of Islamic microfinance on rural households' welfare in Indonesia. Using a survey questionnaire, this study explores two group of financing in Islamic microfinance, equity and debt-based financing. A two-year panel dataset and a double difference-in-difference approach are used to examine the impact of the two Islamic microfinance groups on rural household in Indonesia. The study also evaluates shari'a compliance based on the national shari'a board of Indonesia. The study results indicate that both financing groups exhibit a positive and significant impact on rural households' income, but equity financing performed better than debt-based financing. Moreover, the shari'a compliance evaluation indicates that clients received financing that is comparable with the national shari'a board of Indonesia.

We take advantage of the introduction phase of business risk disclosure in Japan as a natural experiment to examine the causal effects of the disclosure on firm risk. In contrast to risk factor disclosure that appeared partly in the Management Discussion and Analysis section (MD&A) in the United States, Japanese business risk disclosure is a new, independent disclosure regime, which began in the fiscal year ending March 2004.We find that the introduction of mandatory business risk disclosure has a negative impact on total risk. This suggests that an increase in business risk disclosure contributes to reduce a firm’s cost of capital, which is contrary to the results found in previous research. However, we also find that there is a positive relationship across firms and years after the inception between the amount of business risk disclosure and total risk, indicating that mandatory business risk disclosure has an impact on increasing investors’ assessment of firm risk. Although the two effects offset each other, the effects of enhanced disclosure of business risks on reducing the cost of capital exceed the effects on increasing investors’ assessment of firm risk.