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The information content of mandatory risk factor disclosures in corporate filings

Author

Listed:
  • 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)

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.

Suggested Citation

  • John L. Campbell & Hsinchun Chen & Dan S. Dhaliwal & Hsin-min Lu & Logan B. Steele, 2014. "The information content of mandatory risk factor disclosures in corporate filings," Review of Accounting Studies, Springer, vol. 19(1), pages 396-455, March.
    • Handle: RePEc:spr:reaccs:v:19:y:2014:i:1:d:10.1007_s11142-013-9258-3
    DOI: 10.1007/s11142-013-9258-3
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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