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Textual Risk Disclosures and Investors’ Risk Perceptions

49 Pages Posted: 7 Jan 2011 Last revised: 29 Dec 2016

Todd D. Kravet

University of Connecticut - Department of Accounting

Volkan Muslu

C.T. Bauer College of Business University of Houston

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.

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

JEL Classification: D8, G24, G12, M4

Suggested Citation

Kravet, Todd D. and Muslu, Volkan, Textual Risk Disclosures and Investors’ Risk Perceptions. Review of Accounting Studies 18, pp. 1088-1122, 2013. Available at SSRN: https://ssrn.com/abstract=1736228 or http://dx.doi.org/10.2139/ssrn.1736228

Todd D. Kravet

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Volkan Muslu (Contact Author)

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

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