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Stock market reaction to operational risk disclosures: Evidence from LLMs-based textual analysis

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  • Bo, Congcong
  • Shen, Dehua
  • Zhang, Yuzhao

Abstract

With a unique sample of 299 operational risk reports from Chinese A-share and H-share markets, this paper investigates the stock market reaction to operational risk disclosures. The empirical results mainly suggest that (1) stock market reacts positively to disclosures indicating a reduction in operational risk; (2) in-depth reports, suggested by both page-based and Large Language Models (LLMs)-based methods, have stronger stock price reactions compared to regular reports; (3) reports from reputable brokerages have a greater market impact than those from less reputable firms; and (4) reports from star analysts do not lead to significantly stronger stock price reactions than those from ordinary analysts.

Suggested Citation

  • Bo, Congcong & Shen, Dehua & Zhang, Yuzhao, 2026. "Stock market reaction to operational risk disclosures: Evidence from LLMs-based textual analysis," Pacific-Basin Finance Journal, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:pacfin:v:99:y:2026:i:c:s0927538x26001526
    DOI: 10.1016/j.pacfin.2026.103206
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