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Accepted Manuscript

Title: Disclosure of financial instruments: Practices and

challenges of latin american firms from the mining industry

Authors: Rodrigo Fernandes Malaquias, Pablo Zambra

PII: S0275-5319(17)30235-0
Reference: RIBAF 834

To appear in: Research in International Business and Finance

Received date: 4-4-2017

Accepted date: 6-7-2017

Please cite this article as: Malaquias, Rodrigo Fernandes, Zambra, Pablo,
Disclosure of financial instruments: Practices and challenges of latin american
firms from the mining industry.Research in International Business and Finance

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Disclosure of Financial Instruments: Practices and Challenges of Latin

American Firms from the Mining Industry

Rodrigo Fernandes Malaquias* is a Full Time Professor of Accounting at Universidade Federal
de Uberlândia (UFU), Brazil. In 2012, he received his PhD in Business Administration from
Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas (FGV-EAESP),
Brazil. In 2015, he was a Visiting Research Scholar at DePaul University in Chicago, USA. His
research includes finance, accounting, mobile banking, e-commerce, and cross-country studies.
His papers have been published or accepted for publication by peer-reviewed journals, including
Research in International Business and Finance, Accounting & Finance Review (USP),
Computers in Human Behavior, Brazilian Review of Finance, Brazilian Business Review,
Information Development, Information Technology for Development, Journal of Operations and
Supply Chain Management, Technology and Disability, among others. Address: Avenida João
Naves de Ávila, nº 2121, Bloco F, Sala 1F-215, Campus Santa Mônica, Uberlândia / Minas
Gerais / Brazil. CEP (zip code): 38.400-902, Phone: +55 (34) 3239-4176. Email:
Research ID: A-7709-2017 (
ORCID: 0000-0002-7126-1051 (
* corresponding author.

Pablo Zambra is an Auditor, at Deloitte (Chile). His experience as auditor in Deloitte is mainly
oriented to the mining sector of Chile. He has a specialization in International Financial
Reporting Standard and experience as a part time professor of auditing and mining topics at the
Universidad Católica del Norte (UCN), Chile. Currently, he is a Master’s degree student at
Universidade Federal de Uberlânda, Brazil, in the area of Accounting, with emphasis on
Financial Accounting. Address: Avenida João Naves de Ávila, nº 2121, Bloco F, Sala 1F-215,
Campus Santa Mônica, Uberlândia / Minas Gerais / Brazil. CEP (zip code): 38.400-902. Email:


In this paper, we analyze the disclosure level of financial instruments provided by companies of

the mining industry, located in Latin America region. The sample is comprised of 72 firms from

Brazil, Chile, Peru and Mexico. The main results indicate that companies located in Mexico

provide the higher levels of disclosure both for IFRS-07 and for IFRS-09 requirements. The size

of firms is also a variable that affects disclosure. We also build a panorama regarding some

challenges for firms to disclose full information following IFRS-09. Furthermore, the results of

this paper indicate that companies should use the potential benefits of Internet and disclosure

more information regarding financial instruments.

Key-words: IFRS 07; IFRS 09; Credit Risk; Derivatives; Internet.

1. Introduction

Financial instruments play an important role for companies since firms can manage a set

of risk factors with these contracts, especially through derivatives. Nevertheless, even though

financial instruments allow companies to protect their financial income and cash flows, when

managers use derivatives inadequately, they expose the company to a complex scenario of

potential financial losses. In this regard, information about the use of financial instruments is

relevant for external users of accounting reports. With complete information, investors can

estimate the risk of investing more accurately in a particular firm.

Although this is an important issue, disclosing information on financial instruments seems

to not be a simple task for companies; furthermore, it is not a simple task for external auditors to

audit this information. There is a more complex situation when we address disclosure of

derivatives and information about hedge accounting. Different authors consider derivative

financial instruments as a complex issue (Kawaller, 2004; Birt, Rankin & Song, 2013;

Prorokowski, 2013; Chang, Donohoe & Sougiannis, 2016; Tessema, 2016).

Lopes and Rodrigues (2007) studied the disclosure level of Portuguese-listed companies.

They found that, on average, the disclosure level of companies was lower than 50% of the items

available in their disclosure index (their disclosure index contains 54 items). “Accounting

policies” was the category with more information disclosed by companies, and “credit risk” and

“fair value and market value” were the categories with lower levels of disclosure. Firms’

characteristics such as size, listing status and economic sector presented a significant relationship

with corporate disclosure on financial instruments (Lopes & Rodrigues, 2007). With Brazilian

companies, Malaquias and Lemes (2013) found similar results, based on a disclosure index with

45 items, adopted from Lopes and Rodrigues (2007).

Accounting standards about presentation, recognition, measurement and disclosure of

financial instruments have existed for a couple of years, but revisions have been implemented

periodically, as we have the case of IFRS 7 and, nowadays, the IFRS 9, which will be mandatory

after 2018. One of the reasons to issue new standards on financial instruments rely on the

changes and evolution of tools to measure and manage financial risks from these contracts, as

well as new concepts and approaches currently accepted (IASB, 2016). These revisions indicate

the relevance of new studies that analyze if companies meet the minimum information required

of them.

Some companies rely on financial instruments to develop their activities and manage their

risks, which is the case of companies in the mining industry sector. The relationship between

industries of natural resources extraction and the use of derivatives financial instruments was

already documented in previous studies (Hassan, Percy & Stewart, 2006; Taylor et al., 2008;

Taylor et al. 2010; Birt et al. 2013). For example, the sales of firms from the mining industry

sector are very sensitive to the variations of commodities prices (Hassant et al., 2006), since their

main product is sold by different economies worldwide. Firms can use derivatives (or a

combination of financial instruments) to manage “interest rate, foreign currency, and commodity

risk exposures” (Chalmers & Godfrei, 2000, p. 47). In the context of extractive firms, they have

incentives to use derivatives in order to manage these kinds of risks (Birt et al., 2013). It is also

important to note that extractive industries are also exposed to other risks, such as potential

exploration and production risks (Hassant et al., 2006).

The use of derivatives to protect their revenues from undesirable variations in fair values

of commodities prices has a direct effect on their net income and free cash flow. Therefore, it

represents primordial information for shareholders if these companies develop financial

operations for hedging purposes. When presented properly and completely, this information

mitigates the information asymmetry between management and external users of accounting


It is natural to expect that firms in the mining industry sector present adequate information

for external users about their operations with financial instruments. Nevertheless, change in

accounting standards and the complexity of disclosing detailed information about financial

instruments may represent a negative effect on information that these companies report in their

accounting statements. To the best of our knowledge, there is a gap on academic literature about

disclosure of financial instruments in the mining sector, which motivated a new study in this

field. In this context, the aim of this paper is to analyze the disclosure level of financial

instruments provided by mining companies of Latin America. Previous studies have focused

on financial instruments used by firms from the extraction industry (Hassan et al., 2006; Tower et

al., 2008; Birt et al., 2013). Latin America is a region with abundance in natural resources and

has countries with economies in the stage of growing (Martinez et al., 2015). Specifically, in the

mining sector, the World Metals Statistics shows that countries of Latin America have high

representativeness in the mining sector (Cochilco, 2015; 2016); on the other hand, there are few

academic studies with firms of this region.

The Latin American financial market has gained importance in the field of international

finance, since investors from developed economies (such as the US) are investing in assets of

foreign markets to diversify their portfolios and to participate in economic opportunities of

growing economies. Therefore, detailed information represents an important issue in the

evaluation of external users of financial reports (Etter, Lippincott & Reck, 2006; Camacho,


The sample of this paper comprises companies from four Latin American countries,

namely: Chile, Brazil, Mexico, and Peru. The inclusion of these countries in the sample is

grounded in the relevance of them to Latin America. Furthermore, these countries have adopted

international standards to change / improve their local accounting standards. Chile and Peru are

mentioned in the study of Bolaños et al. (2015) for their dynamism in economic activities and

their fund raising of foreign markets. Mexico has a higher impact in the Latin American

integration and Brazil, with its stock exchange, is a representative economy in Latin American


The disclosure index built to develop this study involves items from previous studies

(Lopes & Rodrigues, 2007), current standards (which is the case of IFRS-07), and items from

accounting standards that are not mandatory for the moment (which is the case of IFRS-09).

Therefore, the results reported in this paper indicates not only a panorama regarding the

disclosure practices of mining companies, but also the main challenges that these companies

probably will face to disclose complete information during the next years.

2. Hypotheses of the study

Size and disclosure

Research available in academic literature regarding the disclosure level provided by

companies on their financial reports indicates that detailed information reduces information

asymmetry (Lopes & Rodrigues 2007; Malaquias & Lemes 2013; Birt et al., 2013; Aznan &

Nelson, 2014). In this context, there is also a consideration that firms’ size affects disclosure. For

example, larger companies may disclose more information than smaller companies due their

internal information systems; therefore, to generate accounting reports with detailed information

is less costly for them, so they tend to present higher levels of disclosure (Lopes e Rodrigues,

2007). The positive relationship between size and disclosure was also documented in other

studies (Chalmers & Godfrey 2004; Taylor et al., 2008; Hassan et al., 2008; Taylor et al., 2010;

Birt et al., 2013; Malaquias & Lemes, 2013; Mohammadi & Mardini, 2016). Therefore, the first

variable we include in the quantitative model is size, and the first hypothesis of the study is:

H1: The disclosure of financial instruments is positively associated with firms’ size.

Leverage and disclosure

Grounded on the exposition that firms have when they obtain external financing,

leveraged companies should be more motivated to disclose more information of financial

instruments (Taylor; Tower; Van Der Zahn & Neilson, 2008). Birt et al. (2013) point out that

firms with higher levels of leverage tend to be more exposed to financial risk; also, these firms

tend to use more derivatives and are motivated to disclose more information regarding these

contracts. Some studies have included this variable in the empirical analysis (Chalmers &

Godfrey, 2004; Lopes & Rodrigues, 2007), and some of them found a significant relationship

between leverage and disclosure of financial instruments (Taylor et al., 2008; Hassan et al., 2008;

Taylor et al., 2010; Birt et al., 2013). Therefore, the second hypothesis of this study is:

H2: The disclosure of financial instruments is positively associated with firms’ leverage.

Listing status and disclosure

Listing status of firms also has presented a useful variable to understand the level of

disclosure in accounting reports. Listed companies, especially those companies listed in foreign

markets, tend to present higher levels of disclosure. Since investors are not familiar with

domestic rules of foreign companies, when these companies are listed in foreign markets, they

need to attend the minimum requirements of disclosure. This figure is necessary to improve the

understanding of their financial reports by local investors of foreign markets (Lopes &

Rodrigues, 2007). Malaquias and Lemes (2013) observed a positive relationship between

financial instruments disclosure and the experience of Brazilian companies listed at the New

York Stock Exchange (NYSE). They called this effect as a learning process. Therefore, in this

paper, we expect that firms listed at NYSE will present higher levels of disclosure than those

counterparts will. The level of American requirements of firms should incentive these companies

in engage in a more detailed content on their financial reports. Considering this scenario, we

present the third hypothesis of the study:

H3: The disclosure of financial instruments is positively associated with firms’ listing status at


Firm’s profitability and disclosure

The profitability of the firms represents a variable included in previous studies and the

motivation is related with managers’ behavior. Managers of profitable firms have additional

incentives to disclose more information (Xiao et al., 2004; Kelton & Yang, 2008). We can

consider that firms with higher profitability indexes are more willing to disclose detailed

information to investors (Lopes & Alencar, 2010). Garay et al. (2013) included in their study

Latin American firms, and they observed that disclosure index and ROA (Return on Assets) was

positively associated. Four of the seven countries considered in the study of Garay et al. (2013)

are the same of the sample of this paper. Therefore, we present the fourth hypothesis:

H4: The disclosure of financial instruments is positively associated with firms’ profitability.

Auditor type and disclosure

Among the variables considered to study the disclosure level, we can identify the auditor

type. The relevance of this variable can be explained considering: i) the role of these

professionals to reduce information asymmetry (Jensen & Meckling, 1976; Scott, 2009); and

their participation as external referees regarding the compliance with accounting standards.

Aznan and Nelson (2014), with a sample of Malaysian firms, found a positive relationship among

these variables; nevertheless, in the multivariate regression, this effect was not statistically

significant. Nevertheless, there are other studies that have documented a positive effect of the

auditor type on disclosure (Lopes & Rodrigues 2007; Birt et al., 2013). Therefore, we include this

variable in our quantitative model, and we present the following research hypothesis:

H5: The disclosure of financial instruments is positively associated with type of auditor of the


Country infrastructure and disclosure

Observing the study of Buhr and Freddman (2001), cultural, institutional and conjectural

factors of countries can present an effect on the disclosure level. Countries’ infrastructure affect

the levels of investments, for example, due governmental incentives (Lee & Fisher, 2004;

Kartasheva, 2012); in order to attract more investments, companies could disclose more (and

detailed) information. Private investors have interest in infrastructure projects and these

opportunities are consolidated in developed countries; on the other hand, these opportunities in

developing economies can motivate foreign investors that seek to diversify their portfolios (Peng

& Newell, 2007; Torrance, 2009; Gemson et al., 2012). This situation is presumed to work as an

indirect incentive to local firms disclose more information in emerging economies.

Furthermore, physical and institutional infrastructure factors of a given country also affect

the option do adopt the Internet Financial Report (IFR), which contributes to improvements on

transparency, market efficiency, disclosure practices and financial information levels (Ojah &

Mokoaleli-Mokoteli, 2008). Considering these arguments, and the fact that country’s

infrastructure can support the information demands of external investors, we present the sixth

study hypothesis:

H6: The disclosure of financial instruments is positively associated with country’s infrastructure,

where the firm is located.

Internet access and disclosure

Firms can reduce information asymmetry through voluntary disclosure. Furthermore, they

can use Internet resources to disclose financial reports and to disseminate more information to

external users. Using Internet, firms have a flexible way to present and disclose information,

improve transparency, reach immediate communication, widely and with low cost (Xiao et al.,

2004; Kelton & Yang, 2008; Trabelsia et al., 2008; Gandía et al., 2012; Ojah & Mokoaleli-

Mokoteli, 2012).

The Internet also expands the borders of accounting reports, since these reports can be

quickly available worldwide (Xiao et al., 2004). “Indeed, the Internet could be treated as an

information media, along with other traditional paper-based media” (Gajewskyi & Li, 2015, p. 7).

Therefore, Internet based disclosure can reduce information asymmetry (Gajewskyi & Li, 2015)

and contribute with the transparency level of companies. The growth of Internet use also

increases the demand of corporate/financial information of companies (Alai & Romero, 2012),

and some factors such as size, the number of analysts following the firm and return on equity

affect the extent of additional Internet financial reporting voluntary disclosure (Trabelsi et al.,


Firms in the mining industry tend to disclose higher levels of voluntary information when

compared with other industries, using the Internet as a tool to improve their image and minimize

the environmental effects from their activities (Alai & Romero, 2012). Therefore, based on these

arguments and evidences, we expect that countries with higher levels of Internet access will

present a natural demand for firms to disclose more information. Thus, we present the seventh

hypothesis of this study:

H7: The disclosure of financial instruments is positively associated with country’s Internet

access, where the firm is located.

3. Method and data

The annual accounting reports are the main source of information to develop this paper.

Our sample is comprised of 72 companies in the extractive sector or mining industry, located in

Brasil, Chile, Mexico or Peru. The annual reports were accessed at the official website of the

regulatory body of each country; when necessary, the website of each company was consulted to

search for its respective annual report. Figure 1 contains the names of the regulatory bodies of

each country of this research.

In Brazil, the companies included in the sample participate of the mining extraction

industry or of the oil and gas industry (09 companies with complete data for analysis). To select

companies from Chile, we choose those affected by the specific tax of the mining activity, which

resulted in 32 companies with complete data for analysis. Additionally, we included in the

sample the Corporación Nacional del Cobre de Chile (CODELCO), because it is the main

mining company of the country and it is classified as a public company (Law n. 20285).

Regarding the companies from Mexico, we consulted the Dirección General de

Desarrollo Minero and we found 15 companies of the metallic mining industry with complete

data for analysis in this paper. In Peru, we also selected 15 companies (with complete data) which

are regulated by SMV (Superintendencia del Mercado de Valores) and contain in their names one

of this words: minera, copper, or mina.

After selecting the firms, we collected their annual accounting report of the year of 2015,

since it was the more current information available during the data collection. The year of 2015

represents a period after IFRS adoption and a year before IFRS-09 requirements are mandatory.

Therefore, our results indicate a panorama regarding: i) the disclosure practices of financial

instruments disclosure considering what is required by IASB (IFRS-07); and ii) the disclosure

practices of what will be mandatory for companies after 2018 (IFRS-09).

To estimate the disclosure level of each firm, we used the disclosure index, available in

Appendix A of this research. This questionnaire was developed considering previous studies

(Lopes & Rodrigues, 2007; Chang et al., 2016) and the requirements of IFRS-07 and IFRS-09.

All the questions are equally weighted, and a given company receives the score 1 if it discloses

the item, and 0 in the absence of the required information. The average of these scores, multiplied

by 100, represents the disclosure index (therefore, it varies from 0% to 100%).

We employed multivariate regression analysis to test the seven hypotheses of the study.

To avoid heteroscedasticity problems, we used robust standards errors to report the p-values of

each coefficient. We also observed the VIF (Variance Inflation Factor) indexes to analyze if

multicollinearity is a concern in each quantitative model.

4. Results

In the studies of Camfferman (2015) and Novotny-Farkas (2016), there is a discussion on

the estimated credit losses, comparing IFRS-09 versus IAS-39. Considering the results of this

paper, firms of the sample still do not disclose fully and detailed information as required by

IFRS-09 (as we can see in Table 1); firms from Mexico are those that presented the higher levels

of disclosure for both subset of questions (financial instruments and IFRS-09 requirements). It is

important to note that the requirements from IFRS-09 are not mandatory for the accounting

reports of 2015; nevertheless, those requirements to disclose information regarding financial

instruments are mandatory, but firms do not meet them adequately (none of the firms in the

sample disclosed 100% of information of the disclosure index, as Table 1 indicates).

We also observed that IFRS-09 requirements are not fully disclosed by extractive firms in

the sample of this study. One point that should be highlighted is the information regarding

expected credit losses, which received low scores in the disclosure index and it represents an

issue that has been discussed in different papers (Camfferman, 2015; Novotny-Farkas, 2016),

since it is complex to establish the inputs to estimate these losses and develop the calculations.

During the analysis of results, we observed that some companies have disclosed

information about hedge accounting, such as accounting policies, and these companies attended

partially or fully to the disclosure index requirements (of hedge accounting). Nevertheless, the

analysis of their financial statements indicates that these companies did not use hedge accounting

in such period. This result would be an evidence that some companies keep information from

previous reports to elaborate new accounting statements. We observe this fact in companies of

the four countries of the sample. Therefore, the percentage of disclosure of hedge policies is

higher than the number of companies that used this accounting choice effectively.

As Table 2 shows, we also created two dummy variables to represent the variables:

Internet users and country infrastructure. These variables received 1 for two countries and 0 for

the other two, respectively. The disclosure level of IFRS-09 items is lower than the disclosure

level of financial instruments, as we can see in Table 2 (24.074 and 47.817, respectively). In

Table 3 we report the results of the comparison, among countries, of the disclosure level

estimated to each firm. The results of this table indicate that, despite the disclosure level is

different in the four countries (as Table 1 indicates), these indexes are statistically equivalent

among Brazil, Chile and Peru. Companies from Mexico registered the higher levels of

information regarding financial instruments, but not necessarily of IFRS-09 requirements. Table

4 contains the results for the analysis of the following hypotheses: H1, H2, H3, H4 and H5.

Regarding the results in Table 4, it is important to note that we tested different models

since there are different measures for leverage (lev-tot; lev-st; lev-lt) and profitability (prof-ni;

prof-oi). Furthermore, after performing the Variance Inflation Test (VIF) in the first model, we

observed the presence of multicollinearity between the proxies to leverage and profitability.

Therefore, we run the regressions with these variables separately, to avoid some problems with

the interpretation of the beta coefficients. Table 5 contains equivalent content, but the dependent

variable is the disclosure index of IFRS-09 items (see Appendix A).

The countries’ characteristics available in Figure 2 were used to create the dummy

variables, as we explained before. Therefore, we can test the other two hypotheses: H6 and H7.

The results are available in Table 6, and Table 7 summarizes the results of the hypotheses testing.

There is a consensus that large firms can present a more detailed level of disclosure when

compared with small firms. This result is consistent with the empirical analysis made in this

paper, in a cross-country study, because size and disclosure were positively associated. This

result is in accordance with H1, and with previous research in this field (Chalmers & Godfrey

2004; Taylor et al., 2008; Hassan et al., 2008; Taylor et al., 2010; Birt et al., 2013; Malaquias &

Lemes, 2013; Mohammadi & Mardini, 2016). It is also important to highlight that larger

companies seem to be able to anticipate IFRS-09 requirements too; therefore, they are presumed

to provide a more complete and detailed level of information to their investors and external users.

The relationship between disclosure and leverage (H2) was partially supported because it

was significant for the entire level of disclosure, but not significant when we considered IFRS-09

requirements. Therefore, there results of this paper do not support that leveraged firms have

additional motivation to disclose more detailed information on financial instruments. The auditor

type (H5) did not present a significant effect on credit risk disclosure and on disclosure of

financial instruments. A potential explanation is that this information (from IFRS-09), as a

voluntary content, is not subject of auditing by external auditors during the accounting reports


For the other three hypotheses (H3, H4 and H6), the relationship was not significant, both

for the disclosure level of financial instruments (general) and for the disclosure level of credit risk

(grounded on IFRS-09). Regarding the last hypothesis (H7), it was rejected. Following the

theoretical review, we expected a positive relationship between countries’ Internet access and

disclosure, but the empirical analysis indicated a negative relationship between these variables.

As presented in the theoretical framework, Internet enables firms to present information in a

flexible way and with low cost (Xiao et al., 2004; Kelton & Yang, 2008; Trabelsia et al., 2008;

Gandía et al., 2012; Ojah & Mokoaleli-Mokoteli, 2012).

Therefore, we highlight that companies have an important tool to disseminate

information, but they do not necessarily use this channel to improve their interaction with

shareholders / stakeholders and reduce information asymmetry. This result is more critical when

we observe that firms of the mining sector naturally demand the use of derivatives to reduce their

exposure to external risk factors. Complete information regarding the use of derivative contracts

represents a challenge for these companies, regardless of where they are in Latin America.

5. Final Remarks

Considering the complexity exposed by various users of financial information and other

interested parties in this kind of report, as well as in its interpretation and effective use, the FASB

and the IASB had some initiatives to improve and simplify these requirements; the result is

IFRS-09 (IASB, 2016).

IFRS-09 brings more relevance to financial reports and contribute with transparency and

market efficiency (Novotny-Farkas, 2016). Investors from developed economies have already

evaluated positively this new standard (Onali & Ginesti, 2014). New requirements, such as

expected credit loss instead of only incurred credit loss, improve the way of presentation of

financial statements (Novotny-Farkas, 2016), which represent benefits of this statement.

Nevertheless, even considering the relevance of this kind of information, the analysis of

this paper indicates that companies from the sample study (of the four countries) have not

anticipate this information yet, at least in its fully format. Some companies of the sample study

are evaluating the effects of these standards. IFRS-09 requirements will be mandatory in 2018;

therefore, a debate about the disclosure of these items by firms of the extractive industry is a

major issue to be considered both in the academic studies and in practice.

The results of this paper indicate a panorama not only about the disclosure of financial

instruments by mining firms of Latin America, but we also indicate some challenges related with

the implementation of IFRS-09 requirements to generate a more complete information to

investors. We also report that these challenges will be higher for small firms, and for firms

situated in countries with higher levels of Internet access, since Internet represents a channel that

companies can use to facilitate their interaction with shareholders.

Some limitations are present in this study, and the main one is that the disclosure level is

affected by a set of variables; our quantitative model considers only seven factors to explain the

disclosure index. Therefore, new research is needed to analyze IFRS-09 requirements with other

determinants. The second limitation is the number of companies of each country, because this

quantity may not represent the disclosure practices of the other companies. A third limitation is

related with the countries of the study, since there are other economies in Latin America;

nevertheless, we selected those countries with more representation in the mining industry sector,

and we used this this data to build a panorama regarding some challenges that could be faced by

companies to provide complete information to their shareholders.


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Appendix A
Disclosure Index
# Item / Category (Source)
Credit Risk (Lopes & Rodrigues, 2007; IFRS-07)
1 Counterparties identification
2 Maximum amount of credit risk exposure
3 Significant concentration of credit risk

Credit Risk (IFRS-09)

4 Method to determine credit losses
5 Quantitative and qualitative information on expected credit losses
6 Credit risk exposure and evaluation methods (reduction / increase)
7 Credit losses (twelve months)
8 Credit losses, incurred (twelve months or more)
9 Levels of credit risk

Derivatives - Accounting Policie (Lopes & Rodrigues, 2007; IFRS-07)

10 Risk management policy, including hedging policy
11 Objectives of holding or issuing derivatives
12 Accounting policies and methods adopted
13 Monitoring and controlling policy
14 Financial controls

Derivatives - Financial Instruments (IFRS-07; IFRS-09)


15 Fair value of derivatives

16 Precedure embedded derivated
17 Level - fair values

Derivatives - Risks (Lopes & Rodrigues, 2007; IFRS-07)

18 Segregation by risk categories
19 Principal, stated value, face value, notional value maturity
20 Weighted average/effective interest rate

Hedge Accounting (IFRS-07; IFRS-09)

21 Strategy of risk management
22 How hedge activities can affect future cash flows
23 Effects of hedge accounting on income and on equity
24 Fair value hedge
25 Cash flow hedge
26 Net investment hedge

Risk Management (IFRS-07; IFRS-09)

27 Emmergence of each risk
28 Management of each risk
29 Exposure to each risk
30 Instrument used to manage the risk
31 Efficacy of the risk management (method)
32 Method used to estimate the coverage ratio and inefficiencies

Risk Management - Hedge with Derivatives (Chang et al., 2016; IFRS-07; IFRS-09)
33 Interest rates risk
34 Foreign exchange rate risk
35 Price risk (commodities)
36 Price risk (raw materials)
37 Liquidity risk
38 Credit risk

Risk Management - Different of Credit Risk (IFRS-07; IFRS-09)

39 Other types of risk (beyond credit risk)
40 Sensivity analysis
41 Segregation of the effects (Income x Equity)

Note: Each company receives a score = 1 for each item disclosed.

Figure 1:

Regulatory bodies of the countries studied

Country Regulatory board

Brazil Comissão de Valores Mobiliados (CVM)
Chile Superintendecia de Valores y Seguros (SVS)
Mexico Comisión Nacional Bancaria y de Valores (CNBV)
Peru Superintendencia del Mercado de Valores (SMV)

Figure 2:
Countries’ characteristics regarding internet and quality of infrastructure

200 3.4

150 3.2

100 3.0

50 2.8

0 2.6

Internet Users Secure Internet Servers Logistic Performance Index

Notes: Internet Users = Internet Users by 100 people; Secure Internet Servers = Secure Internet Servers per 1 million
people; Logistic Performance Index = Logistic Performance Index.
Source: Compiled from the database of The World Bank (2016).

Table 1:
Descriptive statistics of the disclosure level, by country

Discl. Fin. Instr. Discl. IFRS 09

Mean S.D. Min. Max. Mean S.D. Min. Max.
Brazil 44.762 25.951 14.286 85.714 27.778 11.785 16.667 50.000
Chile 43.636 21.217 8.571 82.857 19.697 14.704 0.000 50.000
Mexico 61.524 22.364 20.000 85.714 31.111 10.666 16.667 50.000
Peru 45.143 25.787 8.571 82.857 24.445 12.387 0.000 50.000

Table 2:
Descriptive statistics of the variables in the sample

Variables Obs Mean S.D. Min. Max.

intaccess 72 57.336 8.940 40.900 64.289
intaccessdm 72 0.583 0.496 0.000 1.000
infrast 72 3.104 0.169 2.841 3.256
ifrastrdm 72 0.667 0.475 0.000 1.000
lnatuss 72 13.660 2.239 4.625 19.256
lev-tot 72 1.293 3.959 0.019 24.755
lev-st 72 0.686 2.802 0.000 21.280
lev-lt 72 0.607 1.647 0.000 13.647
prof-ni 72 -0.188 0.750 -4.946 0.410
prof-oi 72 -0.122 0.723 -4.946 0.637
audit 72 0.861 0.348 0.000 1.000
nyse 72 0.111 0.316 0.000 1.000
ifrs9 72 24.074 13.672 0.000 50.000
discl 72 47.817 23.643 8.571 85.714

Notes: intaccess = it represents the number of Internet users by 100 people of each country (source: The World Bank,
2016); intaccessdm = it is a dummy variable, and it receives 1 for firms from countries with higher Internet users
index and 0 for the other cases; infrast = it represents the logistic performance index (overall, 1=low to 5=high) of
each country (source: The World Bank, 2016); infrastdm = it is a dummy variable, and it receives 1 for firms from
countries with higher logistic performance indexes and 0 for the other cases; lnatuss = it is the natural logarithm of
Total Assets of each company, in US Dollars; lev-tot = it is the ratio between total liabilities and total assets; lev-st =
short term leverage; lev-lt = long term leverage; prof-ni = the ratio between net income and total assets; prof-oi = the
ratio between operational income and total assets; audit = it is a dummy variable, and it receives 1 for firms audited
by one of the big four auditing companies and 0 for the other cases; nyse = it is a dummy variable, and it receives 1
for firms listed at the New York Stock Exchange; ifrs9 = it represents the disclosure index based only in the items
from IFRS 09 (see also Appendix A); discl = it represents the disclosure index (see also Appendix A) based on the
following sources: IAS 39, IFRS 07 and Lopes & Rodrigues (2007).

Table 3:
Regression analysis between disclosure and dummy variables for countries
Discl. Fin. Instr. Discl. IFRS 09
Coef. P>t Coef. P>t
Brazil -0.381 0.972 3.333 0.504
Chile -1.507 0.844 -4.747 0.251
Mexico 16.381 0.066 6.667 0.117
constant 45.143 0.000 24.444 0.000
r2 = 9.04% r2 = 11.31%

Notes: Brazil = it represents a dummy variable, where firms from Brazil receives 1 and the other cases receive 0;
Chile = it represents a dummy variable, where firms from Chile receives 1 and the other cases receive 0; Mexico =
it represents a dummy variable, where firms from Mexico receives 1 and the other cases receive 0; Peru = it
represents a dummy variable, where firms from Peru receives 1 and the other cases receive 0. The variable “Peru”
was omitted of this regression analysis to avoid perfect multicollinearity.

Table 4:
Regression analysis between disclosure of financial instruments and its determinants
Variables Coef. P>t Coef. P>t Coef. P>t Coef. P>t Coef. P>t Coef. P>t
Brazil -11.909 0.113 -9.996 0.167 -9.946 0.168 -10.387 0.154 -9.640 0.194 -11.652 0.122
Chile -13.680 0.062 -13.065 0.072 -12.950 0.075 -13.346 0.065 -12.665 0.081 -14.349 0.058
Mexico 4.226 0.541 4.312 0.551 4.549 0.532 3.690 0.605 4.838 0.501 2.473 0.751
lnatuss 6.191 0.000 5.591 0.000 5.561 0.000 5.886 0.000 5.675 0.000 5.951 0.000
lev-tot 2.799 0.011 0.741 0.051
lev-st 0.838 0.081
lev-lt 1.627 0.133
prof-ni 11.345 0.038 -1.936 0.316
prof-oi -1.858 0.333
audit 10.743 0.218 10.539 0.221 10.394 0.225 11.779 0.171 11.209 0.199 10.878 0.188
nyse 1.248 0.829 2.009 0.745 1.960 0.753 1.730 0.774 1.701 0.780 2.066 0.731
constant -40.754 0.005 -31.876 0.026 -31.311 0.027 -37.239 0.011 -34.122 0.014 -36.541 0.019
r2 = 43.67% r2 = 41.59% r2 = 41.56% r2 = 42.36% r2 = 42.07% r2 = 42.15%

Notes: the VIF statistic indicated a multicollinearity between the variables leverage and profitability (VIF = 10.69).
Therefore, we estimate the models considering the effects of these variables separately.

Table 5:
Regression analysis between disclosure (IFRS 09) and its determinants
Variables Coef. P>t Coef. P>t Coef. P>t Coef. P>t Coef. P>t Coef. P>t
Brazil 0.980 0.831 0.939 0.836 0.981 0.829 0.878 0.847 0.969 0.832 0.813 0.861
Chile -8.978 0.038 -8.991 0.036 -8.968 0.036 -9.001 0.036 -8.923 0.037 -9.042 0.040
Mexico 3.539 0.429 3.537 0.425 3.516 0.421 3.574 0.418 3.689 0.396 3.562 0.460
lnatuss 2.100 0.012 2.113 0.007 2.128 0.006 2.121 0.009 2.105 0.006 2.104 0.017
lev-tot -0.060 0.933 0.078 0.784
lev-st 0.109 0.715
lev-lt 0.098 0.917
prof-ni -0.757 0.830 -0.474 0.744
prof-oi -0.750 0.597
audit 4.488 0.348 4.492 0.345 4.665 0.314 4.419 0.348 4.413 0.341 4.244 0.358
nyse -5.048 0.178 -5.064 0.169 -5.099 0.167 -5.080 0.167 -5.093 0.167 -5.043 0.172
constant -4.733 0.652 -4.922 0.617 -5.280 0.581 -4.967 0.633 -4.793 0.616 -4.522 0.683
r2 = 24.82% r2 = 24.82% r2 = 24.89% r2 = 24.80% r2 = 24.81% r2 = 24.78%

Notes: we used the same quantitative models available on Table 4 to construct this table.

Table 6:
Regression analysis between disclosure and countries’ characteristics

Variables Discl. Fin. Instr. Discl. IFRS 09

Coef. P>t Coef. P>t
lnatuss 6.018 0.000 2.387 0.006
lev-tot 0.786 0.062 0.167 0.664
audit 11.319 0.181 3.487 0.515
nyse 3.029 0.601 -2.451 0.505
intaccessdm -14.637 0.001 -7.720 0.013
infrastdm 0.440 0.925 -3.001 0.392
constant -37.245 0.011 -4.978 0.657
r2 = 42.01% r2 = 20.46%

Table 7:
Expected signs versus observed signs in the hypotheses testing
Variables Hypotheses Expected Sign Observed Sign
Size H1 + + ; +
Leverage H2 + + ; n.s.
Listing Status H3 + n.s. ; n.s.
Profitability H4 + n.s. ; n.s.
Auditor (Big four) H5 + n.s. ; n.s.
Infraestructure H6 + n.s. ; n.s.
Internet Access H7 + − ; −
Notes: + : indicates a positive and statistically significant relationship; − : indicates a negative and statistically
significant relationship; n.s.: indicates a relationship not significant between the variables.