Textual attributes of risk factors disclosure and domestic enforcement in ADR firms: an international evidence

Jerferson Freitas da Silva, Dante Viana, Lívia Arruda Castro and Vera Ponte

Accounting Research Journal, 2025, vol. 39, issue 1, 146-168

Abstract: PurposeThis paper aims to examine the relationship between domestic enforcement and textual attributes of risk factor disclosures of foreign firms listed in the USA. Using an international sample of American depositary receipts (ADR) firms, it analyzes how the level of domestic enforcement influences the readability and tone of the information disclosed in the risk factors section of Form 20-F.Design/methodology/approachThe analysis spans the period from 2000 to 2023 and, following this procedure, includes 1,343 ADR firm-year observations across 30 countries. The authors use multiple regression and conduct robust tests to confirm their analysis.FindingsThe results suggest that a higher level of enforcement is associated with lower readability and a more biased tone in risk factor disclosures. This suggests that although domestic enforcement aims to enhance information quality, it may lead to more complex and potentially strategic communications. The authors argue that this effect may arise both from the need for strict compliance with detailed regulations and the pressure to meet the expectations of various market participants.Research limitations/implicationsThe measures of readability and tone, although widely used in the accounting and finance literature, have limitations and may not fully reflect the quality of textual attributes.Practical implicationsThis study contributes to investors by providing further evidence of the direct effect of domestic legal enforcement on textual attributes in accounting, which directly affects their judgments about companies’ disclosures. Moreover, the results contribute to regulatory agents with evidence that domestic legal enforcement may affect the quality of companies’ disclosures, providing them with insights for adopting mechanisms of compliance with legislation.Originality/valueThe results contribute to previous international accounting literature by empirically demonstrating how institutional factors influence corporate communication in international markets. Additionally, they provide valuable insights for investors and regulators, highlighting the potential negative impacts of excessive regulation on the clarity of disclosed information, a topic that has rarely been discussed in the literature from both theoretical and practical perspectives.

Keywords: Textual attributes; Enforcement; Risk factors; ADRs; Readability (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arjpps:arj-04-2025-0141

DOI: 10.1108/ARJ-04-2025-0141

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