Are Lengthy and Boilerplate Risk Factor Disclosures Inadequate? An Examination of Judicial and Regulatory Assessments of Risk Factor Language

• 成果类型: Article
• 署名作者: Cazier, Richard A.; McMullin, Jeff L.; Treu, John S.
• 署名单位: University of North Texas System; University of North Texas Denton; Indiana University System; Indiana University Bloomington; West Virginia University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2018-0657
• 发表日期: 2021
• 页码: 131-155
• 关键词: SECURITIES LITIGATION REFORM; INFORMATION; investors; IMPACT

摘要

Although formal guidance instructs firms to avoid issuing lengthy and boilerplate risk factor disclosures, regulators and users of financial statements note these disclosures are excessively long and boilerplate. The persistence of these characteristics is surprising given that prior research finds that firms disclosing lengthy and boilerplate risk factors experience negative capital market consequences. We investigate two potential sources of firms' incentives to issue such disclosures by examining how judicial and regulatory assessments of firms' risk factor disclosures correlate with the disclosure length and boilerplate. Results suggest that lengthier and more boilerplate risk factor disclosures are less likely to be considered inadequate under judicial and regulatory review. Further analysis finds that when risk factor language is assessed as adequate in judicial review, industry peers borrow that language more frequently, and that judicial assessments of risk factor disclosures prompt industry peers to lengthen their risk factor disclosures.