Publication Type

Journal Article

Publication Date

12-2016

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.

Keywords

Risk-factor disclosure, Specificity, Market reactions, Trading volume, Analyst risk assessments, Scenario analysis

Discipline

Accounting | Corporate Finance

Research Areas

Financial Intermediation and Information

Publication

Review of Accounting Studies

Volume

21

Issue

4

First Page

1005

Last Page

1045

ISSN

1380-6653

Identifier

10.1007/s11142-016-9371-1

Publisher

Springer Verlag (Germany)

Additional URL

http://doi.org/10.1007/s11142-016-9371-1

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