Supply chain risk disclosures in 10-K filings: implications for inventory slack and stock returns in unstable demand markets

This study investigates the impact of supply chain risk disclosures in firms’ annual 10-K reports on their operational strategies and stock market performance. Using text mining, 638 instances of supply chain risk disclosures were identified in the Item 1A and Item 7 sections of 10-K filings from 2013 to 2022. This information was merged with firm-level financial data and stock market data to construct a dataset, comprising 18,468 observations from 2,822 firms. The data was analyzed using extended panel regression modelling to explore how firms disclosing these risks differ in their operational strategies and market responses, particularly during periods of high market instability. The findings reveal that firms disclosing supply chain risks tend to maintain significantly higher levels of inventory slack. Moreover, during times of heightened market instability, these firms not only increase their inventory slack but also experience superior stock returns. These findings suggest that the management teams at firms that disclose risks in their 10-K filings are more responsive to market volatility and that investors view these actions positively. Building on these findings, we propose a set of guidelines to help firms facing supply chain challenges translate these insights into practical, real-world operational strategies.