The annual 10-K report has historically been the most important aspect in assessing the position of a publicly held company. However, as the flow of information has increased with the dawn of new technologies, less and less attention has been paid to these audited financial statements. In order to assess if investors are still reacting to the information contained in the annual report, this paper examines the relationship between accounting ratios and stock price in banks traded on United States stock exchanges. By examining accounting ratios instead of simply looking at Earnings Per Share, new information was revealed regarding what aspects of the annual report investors react to. Ratios that incorporate information that is difficult to predict, such as leverage or allowance accounts were more likely to affect a stock’s performance, while those that contained information that is more readily available from other sources had less of an effect.

This study aims to add a new dimension to research in Australia on the use of accounting ratios to predict corporate failure. Previous studies have used the statistical technique of discriminant analysis to derive models for predicting whether a firm will or will not fail. This study will use the same statistical technique but with three differences: / (a) The ratios to be used in the discriminant analysis are selected by a method which ensured that no arbitrary limit is placed on their number. / (b) Because the significance of accounting ratios can vary from industry to industry, four industries are separately analysed: manufacturing, retail, property, and finance. / (c) The statistical probabilities yielded by the analysis are used to measure a firm’s current level of insolvency risk. / The extra dimension is added by interpreting the characteristic patterns of insolvency risk which emerge: an analysis of the factors causing the differences in these patterns throws new light on the causes, symptoms, and remedies of financial distress.

In the years following the 2008 Global Financial Crisis, corporations have heightened their efforts to comprehensively manage all aspect of business risk that could jeopardize their operations or potentially lead to business failure. This increase in efforts have motivated firms to adopt additional preventative measures to internally manage their unique portfolios of impeding enterprise risk. Due to legislative efforts by the U.S. Congress, both the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the Sarbanes-Oxley Act (SOX) were broadly developed to improve corporate governance while increasing transparency within financial reporting. Specifically, Dodd-Frank mandates that large financial firms with $50 billion in assets establish special committees dedicated to assessing their financial risks. Meanwhile, SOX requires all public firms to establish rigorous internal control systems to ensure the adequacy of financial reporting. However, these laws mainly target financial firms and fall short of requiring nonfinancial firms to establish a separate committee to manage corporate risk even though it would be in these companies own interest to enhance their safeguarding efforts against ambiguous financial uncertainties, reputation downshifts, and other inherent risk. This dissertation seeks to understand whether a separate voluntary risk management committee at the board level is related to the financial stability and creditworthiness of nonfinancial firms. Firstly, we investigated whether the existence of a separate risk management committee is associated with the firm’s leverage, solvency, financial health, and organizational soundness. Secondly, we examined whether the existence of a separate risk management committee is associated with the firm’s short- and long-term credit ratings. Using secondary data from Wharton Research Data Services (WRDS), we analyzed data from a wide range of financial ratios and credit ratings from companies listed on the S&P 1500 index to evaluate if these committees have an association with the firm’s ability to manage its risk effectively. Regression analysis was utilized to explore this relationship. Although the direction of the relationship cannot be determined, the results suggest that the establishment of a separate voluntary risk management committee was minimally related to the financial soundness of the firm and was not related to the firm's leverage, solvency, or overall organizational soundness. Inferences or causality cannot be made. Additionally, we found that firms with better short-term credit ratings were more likely to establish a voluntary risk management committee, while long-term credit ratings did not show a correlation with the presence of a voluntary risk management committee. Interestingly, the study also found that the presence of more men on the board and a larger board size increased the likelihood of firms adopting a risk management committee, but over time, the interest in forming these committees has declined within the timeframe reviewed, particularly in the healthcare, communication, and utilities sectors. The results of this study suggest that relying on traditional financial/accounting ratios might not be the most effective method for assessing a firm's risk. Further, these results underscore the need for a more comprehensive approach that includes both quantitative and qualitative risk assessments and approaches. This dissertation contributes to the benefits of establishing a voluntary risk management committee in nonfinancial firms, which is a topic that has not been extensively researched. The aim is to offer a deeper insight into the benefits of such committees and encourage more firms to improve their risk management practices where positive correlations were identified. / Business Administration/Interdisciplinary