The information content of mandatory risk factor disclosures in corporate filings

John L. Campbell (), Hsinchun Chen, Dan S. Dhaliwal, Hsin-min Lu and Logan B. Steele
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John L. Campbell: University of Georgia
Hsinchun Chen: University of Arizona
Dan S. Dhaliwal: University of Arizona and Korea University Business School
Hsin-min Lu: National Taiwan University
Logan B. Steele: University of Connecticut

Review of Accounting Studies, 2014, vol. 19, issue 1, No 12, 396-455

Abstract: 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.

Keywords: Textual analysis; Risk disclosures; Disclosure tone; Regulation; Information content (search for similar items in EconPapers)
JEL-codes: D8 G12 G24 M4 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11142-013-9258-3

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