Does AI bring value to firms? Value relevance of AI disclosures

Abstract

This study examines the value relevance of a firm’s artificial intelligence (AI) implementation and its awareness of the related risks. We proxy a firm’s AI implementation by AI-related disclosures and risk factors in 10-K filings to the U.S. Securities and Exchange Commission. Our results show that AI implementation disclosures in 10-K filings are more value relevant than those without AI disclosures. We also find that the disclosed AI-related risk factors are value relevant, suggesting that investors positively value a firm’s AI risk awareness. By further classifying AI risk factors by a topical analysis of the latent Dirichlet allocation, we find that investors value AI-related risk factor disclosures more regarding security and data privacy. Finally, we find that when a firm has better board- or executive-level IT governance, investors place greater value on AI-related risk factor disclosures regarding business operations.