Do Risk Factor Disclosures Reduce Stock Price Crash Risk?

60 Pages Posted: 2 May 2019 Last revised: 17 Nov 2021

See all articles by Shiu-Yik Au

Shiu-Yik Au

University of Manitoba - Asper School of Business

Bin Qiu

Missouri Western State University, Craig School of Business

Szu-Yin (Jennifer) Wu

State University of New York, University at Buffalo

Date Written: Nov 03, 2021

Abstract

We find that mandating risk factor disclosures (RFDs) in 10-K filings reduces the chance of
a large negative movement in stock prices—stock price crash risk. Further, possible channels for
this effect appear to be reduced information asymmetry, better shareholder rights, and various real
outcomes, such as short-term debt and cash flow distribution. We exploit two exogenous shocks
to mitigate the endogeneity concerns that remain to be addressed in the literature. Overall, our
findings provide evidence that RFDs contain useful information content and benefit investors.

Keywords: Item 1A, Risk Factor Disclosures, Crash Risk, Information Asymmetry, Stock Return Skewness

JEL Classification: G10

Suggested Citation

Au, Shiu-Yik and Qiu, Bin and Wu, Szu-Yin (Jennifer), Do Risk Factor Disclosures Reduce Stock Price Crash Risk? (Nov 03, 2021). Available at SSRN: https://ssrn.com/abstract=3363912 or http://dx.doi.org/10.2139/ssrn.3363912

Shiu-Yik Au

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada
(204) 474-9783 (Phone)

Bin Qiu

Missouri Western State University, Craig School of Business ( email )

4525 Downs Drive Popplewell Hall
Saint Joseph, MO 64506
United States
8162715954 (Phone)

HOME PAGE: http://www.missouriwestern.edu

Szu-Yin (Jennifer) Wu (Contact Author)

State University of New York, University at Buffalo ( email )

349 Jacobs Management Center
Buffalo, NY 14260
United States
7166453276 (Phone)
14260 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
414
Abstract Views
2,286
rank
90,662
PlumX Metrics