Do risk warnings predict capital raising? Evidence from 10-K disclosures and subsequent 8-K filings

Abstract

This study examines whether risk disclosure intensity in 10-K Item 1A sections predicts subsequent corporate financing events using a dataset of 8068 firm-year observations from 2006–2022. Results reveal a dual nature of risk disclosure: while general risk disclosure intensity facilitates financing access, extensive financial risk warnings serve as credible signals of constraints that reduce financing probability. Specifically, comprehensive risk reporting shows positive associations with financing activity, but financial risk words exhibit a negative relationship, suggesting these disclosures credibly signal financial distress rather than facilitate access. These findings contribute to understanding the complex relationship between mandatory disclosure and corporate financing decisions.