Generative AI and Risk Perception: Evidence from Risk-Factor Disclosures (with Giulia Redigolo)
Under review, Contemporary Accounting Research
Scheduled presentation: Hawai'i Accounting Research Conference, 2027.
Abstract: Risk-factor disclosures play a central role in communicating firm-specific risks to investors, yet the growing use of generative artificial intelligence (GenAI) in financial reporting raises questions about whether these disclosures remain sufficiently informative. We examine how the use of GenAI in preparing risk-factor disclosures affects investors’ assessment of firm risk. Focusing on Item 1A risk-factor disclosures in U.S. firms’ 10-K filings from 2019–2024, we exploit the introduction of ChatGPT in November 2022 as a quasi-natural experiment to identify changes in AI usage. Using sentence-level AI detection, we document a significant increase in AI-generated text following ChatGPT’s release. Greater GenAI usage in risk-factor disclosures is associated with weaker market reactions at the filing date, including lower absolute abnormal returns, reduced trading volume, and lower post-filing return volatility. Textual analyses indicate that AI-generated disclosures are shorter and more readable, but also more standardized, less specific, and less responsive to firm-specific economic shocks. Overall, our findings suggest that AI-generated risk disclosures convey less firm-specific information, weakening investors’ incorporation of risk-related information into prices.
Publications
The Effects of Prudential Regulation on Corporate Acquisitions: The Insurance Industry Case (with Alberto Floreani and Andrea Lionzo). European Financial Management, 2026, 32(1), 52–75.
Working Papers
Does Social Media Sentiment Predict Forced CEO Turnover? (with Eli Bartov, Lucile Faurel, and Partha Mohanram). Working paper.
Information Dissemination and Capital Structure: Evidence from Social Media Activity (with Giulia Redigolo). Under review, Journal of Financial Intermediation.
Environmental Disclosure and the Cost of Audit Assurance (with Giulia Redigolo and Andrea Lionzo). Under review, Journal of Accounting, Auditing and Finance.
Geopolitical Shocks and Corporate Risk Disclosure: Evidence from Supply-Chain Exposure to the Russia-Ukraine Conflict (with Shawn Huang and Wenting Zheng). Working paper.
POB Inspection and Private Firm Investment Efficiency (with Chang Woo Hong). Submitted: Financial Accounting and Reporting Section Midyear Meeting; Audit Section Midyear Meeting; International Accounting Section Midyear Meeting.
Work in Progress
Pay for Luck or Pay for Skill? CEO Compensation and Stock Price Informativeness. Draft expected Summer 2027.