Do Risk Factor Disclosures Reduce Stock Price Crash Risk?

46 Pages Posted: 2 May 2019

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: April 1, 2019

Abstract

We examine whether risk factor disclosures in 10-K filings change the third moment of stock returns — skewness or stock price crash risk. We use textual analysis to measure risk factor disclosure and find that risk factor disclosure is negatively associated with crash risk. This effect is further identified through a difference-in-differences analysis and the regression discontinuity design approach. The channels for this effect appear to mitigate the effects of information asymmetry and the impact of hoarding negative news on crash risk — the effect is stronger in firms with higher information asymmetry, litigation risk, and short interest. Overall, our findings provide evidence that additional disclosure can have positive effects on firm outcomes such as stock price crash risk.

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? (April 1, 2019). 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)

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