Information Content of Risk Factors in Corporate Filings: Healthcare Industry

The objective of this study is to investigate incremental information content of the risk factors section of corporate filings in the healthcare industry. Using fifty healthcare firms in the S&P 500, I document that disclosure of risk factors is associated with firms' profitability and liquidity that are measured by return on assets, sales, and liquidity ratio, respectively. I also find that idiosyncratic risks of companies are predominantly associated with return on assets and sales. When matching systematic and idiosyncratic risks in the risk factors section of corporate fillings to beta and abnormal return of capital assets pricing model, I find evidence to support the relationship between idiosyncratic risks and abnormal return, but do not find evidence to support the relationship between systematic risks and beta. Finally, I document evidence supporting a positive relationship between risk factors and the variance of trading volume of firms. Such significant relationship between risk factors and the variance of trading volume is affected by idiosyncratic risk factors and company source risks.