Review of Accounting Studies Vol. 21 No. 4 2016
The benefits of specific risk-factor disclosures
Abstract
Practitioners have long criticized risk-factor disclosures in the 10-K as generic and boilerplate. In response, regulators emphasize the importance of being specific. By using a computing algorithm, this paper establishes a new measure (Specificity) to quantify the level of specificity of firms’ qualitative risk-factor disclosures. We first examine determinants of variations in Specificity, and document that firms with high proprietary costs provide less specific risk-factor disclosures. More importantly, we find that, controlling for numerous determinants, the market reaction to the 10-K filing is positively and significantly associated with Specificity. In addition, our results suggest that analysts are better able to assess fundamental risk when firms’ risk-factor disclosures are more specific. Together, these findings suggest that more specific risk-factor disclosures benefit users of financial statements.
- DOI
- 10.1007/s11142-016-9371-1
- Volume
- 21
- Issue
- 4
- Pages
- 1005-1045
- Language
- en
- Sources
- semanticscholar crossref openalex