Do Risk Factor Disclosures Reduce Stock Price Crash Risk?

54 Pages Posted: 2 May 2019 Last revised: 12 Apr 2023

See all articles by Shiu-Yik Au

Shiu-Yik Au

University of Manitoba - Asper School of Business

Bin Qiu

Depauw University - Department of Economics and Management; Missouri Western State University, Craig School of Business

Szu-Yin (Jennifer) Wu

State University of New York, University at Buffalo

Date Written: March 6, 2023

Abstract

We test whether voluntary or mandatory risk factor disclosures (RFDs) in 10-K filings is associated with a reduction in stock price crash risk. We find that the level of mandatory RFDs in 10-K filings is associated with a reduction in stock price crash risk, but find no similar relationship for voluntary RFDs. We exploit two exogenous shocks to mitigate endogeneity concerns that remain to be addressed in the literature. We investigate the moderators for this relationship and find the reduction is magnified among firms with higher information asymmetry, higher litigation risk, or better corporate governance. Overall, our findings identify a potential avenue to mitigate stock price crash risk and provide evidence that mandated RFDs contain useful information content and benefit investors.

Keywords: Item 1A, Risk factor disclosures, Crash risk, Information asymmetry, Corporate governance, Litigation risk

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? (March 6, 2023). Journal of Accounting and Public Policy, Forthcoming, 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

Depauw University - Department of Economics and Management ( email )

Greencastle, IN 46135
United States

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)

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