||A new approach to identify the economic effects of disclosure: Information content of business risk disclosures in Japanese firms
KIM, HyonokYASUDA, Yukihiro
2016-05 , Hitotsubashi University Center for Financial Research
We empirically examine the economic effects of disclosure by focusing on mandatory textual business risk disclosures in Japan. A unique feature of this study is the construction of a new risk measure, which enables us to isolate economic disclosure effects (i.e., information risk) from fundamental value effects (i.e., fundamental risk). We find that there is a positive association between the number of items within business risk disclosures and information risk. We also find that the results are more pronounced for firm-level disclosure that deviates from that of other firms in the same industry and year. This indicates that business risk disclosures affect investors' risk perceptions and thus increase the information component in the cost of capital.