The benefits of specific risk-factor disclosures

The benefits of specific risk-factor disclosures Practitioners have long criticized risk-factor disclosures in the 10-K as generic and boilerplate. In response, regulators emphasize the importance of being specific. By using a computing algorithm, this paper establishes a new measure (Specificity) to quantify the level of specificity of firms’ qualitative risk-factor disclosures. We first examine determinants of variations in Specificity, and document that firms with high proprietary costs provide less specific risk-factor disclosures. More importantly, we find that, controlling for numerous determinants, the market reaction to the 10-K filing is positively and significantly associated with Specificity. In addition, our results suggest that analysts are better able to assess fundamental risk when firms’ risk-factor disclosures are more specific. Together, these findings suggest that more specific risk-factor disclosures benefit users of financial statements. Review of Accounting Studies Springer Journals

The benefits of specific risk-factor disclosures

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Springer US
Copyright © 2016 by Springer Science+Business Media New York
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
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