We find that mandating risk factor disclosures (RFDs) in 10-K filings reduces the chance of a large negative movement in stock prices—stock price crash risk. Further, possible channels for this effect appear to be reduced information asymmetry, better shareholder rights, and various real outcomes, such as short-term debt and cash flow distribution. We exploit two exogenous shocks to mitigate the endogeneity concerns that remain to be addressed in the literature. Overall, our findings provide evidence that RFDs contain useful information content and benefit investors.
