The information content of mandatory risk factor disclosures in corporate filings

John L. Campbell, Hsinchun Chen, Dan S. Dhaliwal, Hsin min Lu, Logan B. Steele

Research output: Contribution to journalArticle

138 Scopus citations

Abstract

Beginning in 2005, the Securities and Exchange Commission (SEC) mandated firms to include a "risk factor" section in their Form 10-K to discuss "the most significant factors that make the company speculative or risky." In this study, we examine the information content of this newly created section and offer two main results. First, we find that firms facing greater risk disclose more risk factors, and that the type of risk the firm faces determines whether it devotes a greater portion of its disclosures towards describing that risk type. That is, managers provide risk factor disclosures that meaningfully reflect the risks they face. Second, we find that the information conveyed by risk factor disclosures is reflected in systematic risk, idiosyncratic risk, information asymmetry, and firm value. Overall, our evidence supports the SEC's decision to mandate risk factor disclosures, as the disclosures appear to be firm-specific and useful to investors.

Original languageEnglish (US)
Pages (from-to)396-455
Number of pages60
JournalReview of Accounting Studies
Volume19
Issue number1
DOIs
StatePublished - Mar 2014

Keywords

  • Disclosure tone
  • Information content
  • Regulation
  • Risk disclosures
  • Textual analysis

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

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