Management Disclosure of Risk Factors and COVID-19

Forthcoming in Financial Innovation

18 Pages Posted: 14 Apr 2020 Last revised: 30 Jan 2023

See all articles by Tim Loughran

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Date Written: January 28, 2023


Public companies in the United States are required to file annual reports (i.e., Form 10-K) and disclose, among other things, the risk factors that may harm their stock price. The risk of a pandemic was well known before the recent crisis, and we now know that the initial impact on many shareholders was significant and negative. To what extent did managers forewarn their shareholders about this valuation risk? We examine all 10-K filings from 2018, before any knowledge of the current pandemic, and find that less than 21% of them contain any reference to pandemic-related terms. Given the management’s presumed in-depth knowledge of their business and the general awareness that pandemics have been identified as a significant global risk for at least the past decade, this number should have been higher. We find an unexpectedly positive correlation (0.137) between the use of pandemic-related words in annual reports and realized stock returns during the actual pandemic at the industry level. Some industries most severely impacted by COVID-19 barely mentioned pandemic risk in their financial disclosures to shareholders, indicating that managers were ineffective in highlighting their exposure to pandemic risks to investors.

Keywords: pandemic, COVID-19, Form 10-K, risk factors

JEL Classification: G12, G18, G38, G02

Suggested Citation

Loughran, Tim and McDonald, Bill, Management Disclosure of Risk Factors and COVID-19 (January 28, 2023). Forthcoming in Financial Innovation, Available at SSRN: or

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

University of Notre Dame
Notre Dame, IN 46556-0399
United States
574-274-2333 (Phone)


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