Pandemic Risks

Stock Market Feature

Shannon Roddel | April 27, 2020

Public companies in the United States are required to file annual reports that, among other things, disclose the risk factors that might negatively affect the price of their stock.

The risk of a pandemic was known prior to the current health crisis, yet managers, in disclosing their companies’ risk factors to shareholders in 2018, showed little foresight in terms of the impact and likelihood of a pandemic, according to new research from the University of Notre Dame.

In “Management Disclosure of Risk Factors and COVID-19,” Bill McDonald and Timothy Loughran, finance professors at Notre Dame’s Mendoza College of Business, examine all 10-K filings (annual reports filed with the Securities and Exchange Commission) from 2018, before the current pandemic, and find that less than 21 percent of the filings contain any pandemic-related terms.

“Pandemic risk was well known before today’s crisis and we now know the impact for shareholders is significant and negative for the majority of companies,” McDonald said. “Given management’s presumably deep understanding of their businesses and general awareness that, for at least the past decade, pandemics have been identified as a significant global risk, the percentage of firms listing it among other low-probability events, like earthquakes, asteroids and volcanoes, should have been higher.”

Read more here. 

 by Daily Domer Staff