Do MD&A Risk Disclosures Reduce Stock Price Crash Risk? Evidence from China

Abstract

This study examines whether and how risk disclosures in Management Discussion and Analysis (MD&A) affected the stock price crash risk of China’s publicly listed firms over the period of 2017–2021. The empirical results show that risk disclosures within the MD&A section are significantly and negatively associated with the future stock price crash risk, even after controlling for a broad set of well-known factors of crash risk. Additional tests revealed that the impact of MD&A risk disclosures on the stock price crash risk is accentuated when the MD&A disclosure contains more incremental information. The negative association between MD&A risk disclosures and stock price crash risk is also more pronounced for firms with poorer information environments, for firms with weaker external monitoring, and for firms with more investor attention. Our findings are robust to alternative measures of the stock price crash risk, controlling for firm-fixed effects and endogeneity issues, and excluding certain samples. The results indicate that MD&A risk disclosures could help alleviate information asymmetry and mitigate stock price crash risk.

Keywords

• MD&A
• risk disclosure
• stock price crash risk
• information asymmetry