Management Disclosure of Risk Factors and COVID-19

Public companies in the United States are required to file annual reports (Form 10-K) that, among other things, disclose the risk factors that might negatively affect the price of their stock. The risk of a pandemic was well known before the current crisis and we now know the impact for shareholders is, for almost all companies, significant and negative. To what extent did managers forewarn their shareholders of this valuation risk? We examine all 10-K filings from 2018, well before any knowledge of the current pandemic, and find that less than 21% of the filings contain any reference to pandemic-related terms. Given management’s presumably deep understanding of their business and general awareness that, for at least the past decade, pandemics have been identified as a significant global risk, it seems that this number should have been higher.