Digital Enterprise Seminar Series - Dr. Hasan Cavusoglu

IT Risk Factor Disclosure

As business strategies of many firms and their value creation activities are increasingly more dependent on Information Technology (IT), risks associated with IT become one of the top concerns for corporate boards. This study examines the impact of IT-related risk factor disclosure in Item 1A of the 10-K annual report on a firm’s stock price crash risk. We use a text-mining approach of Latent Dirichlet Allocation topic modeling to identify risk categories in risk disclosures between 2006 and 2017. IT risk emerged as one of the key risk categories. We find that IT risk disclosure increases a firm’s future stock price crash risk. We further separate IT risk factor disclosures into two broad categories: IT value risk that relates to a firm’s goals and objectives, and cybersecurity risk that could lead to a loss or leak of data. We find that while the impact of cybersecurity risk disclosure on a firm’s future crash risk is significant, IT value risk disclosures do not have a significant impact. We also find that the readability, position, and novelty of the IT risk factor disclosure strengthen the relation between the disclosure and the firm’s stock price crash risk.

Co-authored with: Victor Song (Sauder School of Business), Gene M. Lee (Sauder School of Business) and L. Z. Ma (York University)

About the speaker:

Hasan Cavusoglu is an Associate Professor of Management Information Systems at Sauder School of Business, University of British Columbia. He obtained his PhD at the University of Texas at Dallas. His recent research interests include the strategic impact of information technology investments, the relationship between the value of IT and the competitive advantage and IT risks. His publications have appeared in Management Science, Information Systems Research, MIS Quarterly, Journal of Management Information Systems, ACM Transactions on Management Information Systems, Production and Operations Management Journal among others. He is currently serving as an Associate Editor at MIS Quarterly.