Risk disclosures, international orientation, and share price informativeness: Evidence from China

This paper examines the impact of textual risk disclosure on the amount of firm-specific information incorporated into share prices, as measured by stock price synchronicity. Using a sample of Chinese listed firms, we find that synchronicity is inversely associated with the extent of risk disclosure, suggesting that risk disclosure is firm specific and useful to investors. In addition, our results show that the usefulness of risk information is statistically and economically more pronounced among internationally oriented firms than domestically oriented ones. This result is consistent with the necessity for risk disclosure being more meaningful when it relates to greater uncertainty. Finally, we find that internationally oriented firms tend to disclose more risk factors than their domestically oriented counterparts. Overall, our results shed light on the current debate over whether narrative sections of annual reports convey useful information to investors.