Business

What drives reputational risk? Evidence from textual risk disclosures in financial statements

X. Zhu, Y. Wang, et al.

This fascinating research by Xiaoqian Zhu, Yinghui Wang, and Jianping Li explores the critical drivers of reputational risk within U.S. financial institutions. By analyzing risk disclosures from thousands of annual reports, the study uncovers 13 significant risk drivers and their evolution over time, providing valuable insights for risk management.

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Abstract

This paper investigates the drivers of reputational risk, a crucial yet under-researched area, especially for financial institutions. The authors analyze textual risk disclosures from 11,921 annual reports (Form 10-K) of 1570 U.S. financial institutions from 2006-2019. Using a modified Sentence-latent Dirichlet allocation (Sent-LDA) text mining method, they identify 13 reputational risk drivers, extending existing literature. The study quantifies the importance of these drivers and analyzes their evolution over time, revealing insights for proactive risk management and future quantitative research.

Publisher

Humanities and Social Sciences Communications

Published On

Sep 16, 2022

Authors

Xiaoqian Zhu, Yinghui Wang, Jianping Li

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