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

Cazier, Richard A.; McMullin, Jeff; Treu, John Spencer

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

Files

HARC_2019_paper_136.pdf (714.67 KB)

Date

2018-08-30

Authors

Cazier, Richard A.

McMullin, Jeff

Treu, John Spencer

Abstract

Prior research finds that lengthy and boilerplate risk factor disclosures are associated with negative capital market consequences. Yet regulators and users of financial statements continue to criticize corporate risk factor disclosures as excessively long and boilerplate. We investigate two potential sources of firms’ incentives to issue lengthy, boilerplate risk factor disclosures by examining how judicial and regulatory assessments of firms’ risk factor disclosures correlate with measures of disclosure length and disclosure boilerplate. Our results suggest that lengthy and more boilerplate risk factor disclosures are less likely to be considered inadequate under judicial and regulatory review. Specifically, risk factor disclosures that are lengthier and less specific are less likely to be flagged as inadequate for safe harbor purposes under the Private Securities Litigation Reform Act. In addition, more standardized risk factor disclosures are less likely to be targeted by an SEC comment letter during the SEC’s filing review process.

Keywords

risk disclosure, boilerplate, litigation risk, securities lawsuits, SEC comment letters, disclosure regulation

URI

http://hdl.handle.net/10125/59317

Collections

18 Financial: Credit ratings/Intangible assets/other financial accounting issues

Full item page

Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.