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Narrative Investment-Risk Disclosure & REIT Investment

Author

Listed:
  • Dongshin Kim

    (Pepperdine University)

  • Dongkuk Lim

    (Seaver College, Pepperdine University)

  • Jonathan A. Wiley

    (Georgia State University)

Abstract

We study narrative investment-risk disclosure, applying computational linguistic analysis to the qualitative discussions of risk throughout 10-K filings. Our sample covers the real estate investment trust (REIT) sector, where firms rely heavily on external capital sources to fund new investment. Using granular investment data from a source that is independent from annual filings, we document a positive relation between changes to investment-risk disclosure and changes to actual investment. Such linkage previously evades the disclosure-informativeness literature, but is feasible in our study based on data advantages to the REIT sector. Changes to risk disclosure do not appear to increase simply the perception of risk among investors. Unlike evidence from the broader market, we find no significant relation to the volatility of stock returns or the volatility of analyst forecast revisions following the filing. Instead, changes to investment-risk disclosure appear informative as they are followed by a pronounced enhancement to market liquidity. The average increase in post-filing trading volume for firms that increase acquisitions is 8%, conditional on a top-tercile increase to investment-risk disclosure; or 0%, when disclosure is non-increasing.

Suggested Citation

  • Dongshin Kim & Dongkuk Lim & Jonathan A. Wiley, 2023. "Narrative Investment-Risk Disclosure & REIT Investment," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 542-567, February.
    • Handle: RePEc:kap:jrefec:v:66:y:2023:i:2:d:10.1007_s11146-021-09819-3
    DOI: 10.1007/s11146-021-09819-3
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    References listed on IDEAS

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