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Risk disclosure in annual reports and corporate investment efficiency

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  • Li, Yanqiong
  • He, Jie
  • Xiao, Min

Abstract

We calculate a risk disclosure index (RDI) from annual reports by applying textual analysis and study how it affects investment efficiency in firms. The results show that the higher the frequency of risk disclosure in sections of MD&A is, the higher the corporate investment efficiency will be. In further analysis, we find that the effect of risk disclosure on corporate investment efficiency is more prominent when the tone of MD&A is more positive, when there are more keywords about investment in MD&A and when investors have more demand of information or better ability of information processing. Our results support the convergence argument on risk disclosure, and our findings advance the literature of both risk disclosure and investment efficiency.

Suggested Citation

  • Li, Yanqiong & He, Jie & Xiao, Min, 2019. "Risk disclosure in annual reports and corporate investment efficiency," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 138-151.
    • Handle: RePEc:eee:reveco:v:63:y:2019:i:c:p:138-151
    DOI: 10.1016/j.iref.2018.08.021
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    2. Ibrahim, Awad Elsayed Awad & Hussainey, Khaled & Nawaz, Tasawar & Ntim, Collins & Elamer, Ahmed, 2022. "A systematic literature review on risk disclosure research: State-of-the-art and future research agenda," International Review of Financial Analysis, Elsevier, vol. 82(C).
    3. Zhang, Linlang & Zhang, Zhe & Zhang, Peng & Wang, Xiongyuan, 2022. "Defend or remain quiet? Tax avoidance and the textual characteristics of the MD&A in annual reports," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 193-204.
    4. Guo, Haifeng & Wang, Ying & Wang, Bo & Ge, Yuanjing, 2022. "Does prospectus AE affect IPO underpricing? A content analysis of the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 1-12.
    5. Maryam Firoozi & Sana Mohsni, 2023. "Cybersecurity disclosure in the banking industry: a comparative study," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(4), pages 451-477, December.
    6. Jia, Jing & Li, Zhongtian, 2022. "Risk management committees and readability of risk management disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    7. Miwa, Kotaro, 2021. "Language barriers in analyst reports," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 223-236.

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