Abstract

http://ssrn.com/abstract=1736228
 
 

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Textual Risk Disclosures and Investors’ Risk Perceptions


Todd D. Kravet


University of Texas at Dallas - Naveen Jindal School of Management

Volkan Muslu


Bauer College of Business University of Houston

June 2, 2012

Review of Accounting Studies, Forthcoming

Abstract:     
We examine the association between changes in companies’ textual risk disclosures in 10-K filings and changes in stock market and analyst activity around the filings. We find that annual increases in risk disclosures are associated with increased stock return volatility and trading volume around and after the filings. Increases in risk disclosures are also associated with more dispersed forecast revisions around the filings. In contrast to prior literature documenting resolved uncertainties in response to various types of company disclosures, our findings suggest that textual risk disclosures increase investors’ risk perceptions. However, the results are less pronounced for firm-level disclosures that deviate from those of other companies in the same industry and year. These results lend support for critics’ arguments that firm-level risk disclosures are more likely to be boilerplate.

Number of Pages in PDF File: 49

Keywords: Disclosure, risk, uncertainty, 10-K filings, trading volume, stock return volatility, analysts

JEL Classification: D8, G24, G12, M4

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Date posted: January 7, 2011 ; Last revised: December 5, 2012

Suggested Citation

Kravet, Todd D. and Muslu, Volkan, Textual Risk Disclosures and Investors’ Risk Perceptions (June 2, 2012). Review of Accounting Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1736228 or http://dx.doi.org/10.2139/ssrn.1736228

Contact Information

Todd D. Kravet
University of Texas at Dallas - Naveen Jindal School of Management ( email )
800 West Campbell Road
Richardson, TX 75080-3021
United States
Volkan Muslu (Contact Author)
Bauer College of Business University of Houston ( email )
Bauer College of Business
4800 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)
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