Risk reporting and stock return in the UK: Does market competition Matter? |
| |
Institution: | 1. School of Economics and Management, Beihang University, Beijing, China;2. Beijing Advanced Innovation Center for Big Data and Brain Computing, BeihangUniversity, Beijing, China;3. Key Laboratory of Complex System Analysis, Management and Decision (BeihangUniversity), Ministry of Education, Beijing, China |
| |
Abstract: | This study examines the extent to which market competition influences risk reporting practice. It also explores how market competition affects the usefulness of risk reporting. The automated textual analysis measures the level of risk reporting how much to report] and its tone how it is reported] of UK FTSE 350 firms. The abnormal stock return is used as a proxy for the usefulness of risk reporting. In contrast to the proprietary cost hypothesis, our results indicate that the level of risk reporting is a positive function of market competition. Besides, UK firms are likely to disseminate more (less) negative (positive) news about their risks when market competition increases. However, after examining the informativeness of this reporting, we provide evidence that the level of reported risk information does not significantly enhance the abnormal stock returns of UK firms. Nevertheless, the tone of the reported risks carries incremental information indicative of a firm’s abnormal stock return, especially when market competition decreases. The findings suggest that firms are likely to alleviate their proprietary costs by framing their reporting of risk information in a way that deters potential competitors from entering their market and that market competition diminishes the perceived informativeness of such reporting. The results provide implications for investors as they should not acknowledge the disclosure of higher risk information when asking for more corporate transparency, as it lacks informativeness. Besides, policymakers may impose extra compulsory requirements on the UK firms to avoid reporting overly optimistic risk news to protect investors and avoid the adverse effects of this reporting. |
| |
Keywords: | Risk Reporting Disclosure Tone Tone Polarity Proprietary Cost Hypothesis Market Competition Abnormal Stock Return UK |
本文献已被 ScienceDirect 等数据库收录! |
|