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Author: Keehea Moon Publisher: ISBN: Category : Languages : en Pages : 73
Book Description
The SEC mandates that firms disclose material risk factors in their annual reports and adopts a principles-based approach, which allows managers to exercise discretion in determining which risks are material and the extent to which these risk factors are disclosed. To investigate whether risk factor disclosures reflect what managers consider to be material risks as the SEC intended, I examine manager-specific factors as a determinant of the content of risk factor disclosures. Specifically, I propose that managers have different risk perceptions that affect their assessment of material risks and ultimately the disclosure outcomes. Using a fixed effects approach, I find that individual managers have a significant effect on both the quantity and quality of risk factor disclosures after controlling for time varying firm characteristics, reporting incentives, firm fixed effects, and time fixed effects. Further, I examine managerial overconfidence, a managerial bias that is related to how managers perceive risks, and find that more overconfident managers disclose fewer risk factors and provide lower quality risk factor disclosures. Finally, I find that firms with more overconfident managers are more likely to receive a SEC comment letter on their risk factor disclosures. Overall, my findings suggest that manager-specific factors have a significant influence on the textual content of an important mandatory disclosure.
Author: Keehea Moon Publisher: ISBN: Category : Languages : en Pages : 73
Book Description
The SEC mandates that firms disclose material risk factors in their annual reports and adopts a principles-based approach, which allows managers to exercise discretion in determining which risks are material and the extent to which these risk factors are disclosed. To investigate whether risk factor disclosures reflect what managers consider to be material risks as the SEC intended, I examine manager-specific factors as a determinant of the content of risk factor disclosures. Specifically, I propose that managers have different risk perceptions that affect their assessment of material risks and ultimately the disclosure outcomes. Using a fixed effects approach, I find that individual managers have a significant effect on both the quantity and quality of risk factor disclosures after controlling for time varying firm characteristics, reporting incentives, firm fixed effects, and time fixed effects. Further, I examine managerial overconfidence, a managerial bias that is related to how managers perceive risks, and find that more overconfident managers disclose fewer risk factors and provide lower quality risk factor disclosures. Finally, I find that firms with more overconfident managers are more likely to receive a SEC comment letter on their risk factor disclosures. Overall, my findings suggest that manager-specific factors have a significant influence on the textual content of an important mandatory disclosure.
Author: Jennifer Riley Publisher: ISBN: Category : Languages : en Pages : 32
Book Description
Proponents tout plain English as a solution for improving communication of complex information to users in various areas of business, medicine, and law. The SEC's mandate to public companies to use Plain English in their Item 1a risk factor disclosures to make them more readable is one example. Using 365 responses from an experimental survey of nonprofessional US investors, we find that readability significantly influences investors' perceptions of probability and size of loss, economic worry, and overall risk. Further, these effects interact with type of risk factor. Readability does not appear to influence investment decisions or perception of management credibility. Finally, we find that investors report that they do not use item 1a risk factors in their investment analyses in practice. Results suggest that this area needs further research before future mandates for plain English and risk factor disclosures are enacted.
Author: Joshua Filzen Publisher: ISBN: Category : Languages : en Pages : 35
Book Description
Prior research has documented that the market responds to quarterly updates to annual risk factor disclosures at the time of release, suggesting quarterly risk factor updates provide informational value to investors. In this study, we examine whether future returns are associated with quarterly risk factor updates. We find that firms with quarterly risk factor updates experience lower future returns, relative to firms without updates. Further, we find that firms that shy away from language indicating risk to firm fundamentals in a quarterly risk factor update exhibit the strongest predictability of future returns. This result suggests that the content of an update is related to the completeness of the market reaction at the time the 10-Q is filed. This research is of direct interest to investors and regulators who are currently considering how to improve risk factor disclosure requirements.
Author: Cristina Florio Publisher: Springer Nature ISBN: 3030883744 Category : Business & Economics Languages : en Pages : 270
Book Description
This volume offers new, convincing empirical evidence on topical risk- and risk management-related issues in diverse settings, using an interdisciplinary approach. The authors advance compelling arguments, firmly anchored to well-accepted theoretical frameworks, while adopting either qualitative or quantitative research methodologies. The book presents interviews and surveys with risk managers to gather insights on risk management and risk disclosure in practice. Additionally, the book collects and analyzes information contained in public reports to capture risk disclosure and perceptions on risk management impacts on companies’ internal organization. It sheds light on financial and market values to understand the effect of risk management on actual and perceived firm’s performance, respectively. Further, it examines the impacts of risk and risk management on society and the economy. The book improves awareness and advances knowledge on the complex and changeable risk and risk management fields of study. It interweaves among topical, up-to-date issues, peculiar, under-investigated contexts, and differentiated, complementary viewpoints on the same themes. Therefore, the book is a must-read for scholars and researchers, as well as practitioners and policy makers, interested in a better understanding of risk and risk management studies in different fields.
Author: John L. Campbell Publisher: ISBN: Category : Languages : en Pages : 61
Book Description
Beginning in 2005, the SEC mandated firms to include a “risk factor” section in their Form 10-K to discuss “the most significant factors that make the company speculative or risky.” This suggests that regulators believe that investors benefit from disclosures about firm risk and uncertainties. Critics argue that the disclosures are qualitative and boilerplate, and thus uninformative. In this study, we examine the information content of this newly-created risk factor section and offer two main results. First, we find that firms that face greater risk disclose more risk factors, and that the type of risk that a firm faces (i.e. systematic, idiosyncratic, financial, legal, or tax) determines whether they devote a greater portion of their disclosures towards describing that risk type. In other words, managers provide informative risk factor disclosures. Second, we find that market participants incorporate the information conveyed by risk factor disclosures into their assessments of firm risk and stock price, and that the public availability of the disclosure decreases information asymmetry amongst firms' shareholders. We are the first study to document that when managers increase negative/pessimistic qualitative disclosure, market-based measures of firm risk increase. These results provide further insight into the relationship between disclosure and firm risk, and may inform current policy decisions of the SEC.
Author: Kristina C. Demek Publisher: ISBN: Category : Languages : en Pages : 48
Book Description
I use an experiment to examine how varying levels of similar or dissimilar detail between risk oversight disclosures influences nonprofessional investors' judgments and decisions. Investors evaluate the risk oversight disclosures of two firms that have different levels of risk exposure but the same risk governance practices. Drawing from research in psychology, I predict and find that more detailed disclosures have a greater persuasive influence on investors' (1) perceptions of the board's involvement in risk oversight, (2) perceptions of the board and management's effectiveness at managing risks, and (3) investment decisions. Investors' risk perceptions and investment decisions are greater for the low-risk firm relative to the high-risk firm, except when the low-risk firm's risk oversight disclosure contains less detail than the high-risk firm's disclosure, suggesting that detail within risk oversight disclosures can influence investors' perceptions of risk governance beyond the underlying risk characteristics of the firm. Results have implications for investors, regulators, managers, and boards.
Author: Tamara Afifi Publisher: Routledge ISBN: 1135890560 Category : Language Arts & Disciplines Languages : en Pages : 449
Book Description
This volume provides an in-depth exploration of two key processes in communication research: uncertainty and information regulation. It integrates scholarly work on disclosure and uncertainty with cutting edge research, theories, and applications. Offering contributions from renowned scholars, this volume is a unique and timely resource for advanced study in interpersonal, health, and family communication, and it will also appeal to scholars interested in applied research.
Author: Anne Beatty Publisher: ISBN: Category : Languages : en Pages : 58
Book Description
The SEC's Disclosure Effectiveness Initiative (December 2013) highlights a difference between accounting regulators and academics in their perceptions of Item 1A risk factor disclosure effectiveness. Because most academic evidence relies on pre-financial crisis data, we compare changes in risk factor disclosure informativeness before and after the crisis as a possible explanation for this disconnect. We further explore this discrepancy by considering i) three classes of market participants, ii) new, discontinued, and repeated disclosures, and iii) non-market outcomes. Our results confirm previous findings but indicate that those results no longer hold in the subsequent period. Specifically, we find that although equity, option, and bond markets react to unexpected risk factor disclosures in the period leading up to the financial crisis (2006-2008), the market reactions decline significantly in the post-crisis period (2009-2014). Perhaps surprisingly, the documented changes in informativeness are not driven by disclosures repeated from one year to the next but instead result from new disclosures initiated in the current year and, in the option and debt markets, also from disclosures discontinued from the previous year. Finally, using the Altman Z-score as an objective bankruptcy risk measure, we find that the association between risk factor disclosures and companies' future bankruptcy risk declines significantly in the post financial crisis period. Taken together, these findings contribute to the current disclosure effectiveness debate by highlighting that risk factor disclosures, which were informative in the preceding period, become less reflective of the underlying economic risks and thus less informative to investors in the post-crisis period.
Author: Keehea Moon
Author: Keehea Moon
Author: Jennifer Riley
Author: Joshua Filzen
Author: Cristina Florio
Author: John L. Campbell
Author: Kristina C. Demek
Author: 
Author: Tamara Afifi
Author: Anne Beatty
Author: Institute of Medicine