TY - JOUR
T1 - Using relevant headings in risk factor disclosures
T2 - What is the impact on information processing?
AU - Huang, Feiqi
AU - Wang, Tawei
AU - Yen, Ju Chun
N1 - Publisher Copyright:
© 2023 Elsevier Inc.
PY - 2023/9/1
Y1 - 2023/9/1
N2 - This paper empirically examines whether using relevant headings to categorize risk factors in Item 1A of Form 10-K can enhance its readability and thus facilitate investors’ understanding. Using a sample of S&P 1500 firms from 2017 to 2019, we find that post-filing abnormal returns and abnormal bid–ask spreads are lower for firms that use headings in Item 1A than for those that do not. We also find that these associations are stronger when filings have low readability, when the firm has higher financial risk, and when there is higher content concentration in risk factors under the same heading. Given that Regulation S-K was amended in 2020 to mandate categorizing risk factors under relevant headings, our findings provide policy implications by showing that such categorization helps investors to navigate risk factor disclosures and, thus, improves their process of comprehending information.
AB - This paper empirically examines whether using relevant headings to categorize risk factors in Item 1A of Form 10-K can enhance its readability and thus facilitate investors’ understanding. Using a sample of S&P 1500 firms from 2017 to 2019, we find that post-filing abnormal returns and abnormal bid–ask spreads are lower for firms that use headings in Item 1A than for those that do not. We also find that these associations are stronger when filings have low readability, when the firm has higher financial risk, and when there is higher content concentration in risk factors under the same heading. Given that Regulation S-K was amended in 2020 to mandate categorizing risk factors under relevant headings, our findings provide policy implications by showing that such categorization helps investors to navigate risk factor disclosures and, thus, improves their process of comprehending information.
KW - Information processing
KW - Item 1A
KW - Regulation S-K
KW - Risk factor disclosure
UR - http://www.scopus.com/inward/record.url?scp=85167808835&partnerID=8YFLogxK
U2 - 10.1016/j.jaccpubpol.2023.107123
DO - 10.1016/j.jaccpubpol.2023.107123
M3 - 期刊論文
AN - SCOPUS:85167808835
SN - 0278-4254
VL - 42
JO - Journal of Accounting and Public Policy
JF - Journal of Accounting and Public Policy
IS - 5
M1 - 107123
ER -