Board risk committees and risk factor disclosures tone

We investigate the impact of the board risk committee (BRC) on upward tone management in risk factor disclosures (RFD). Based on a sample of U.S. listed financial firms from 2005 to 2019, we find that the presence of a BRC is associated with less upward tone management in RFD, suggesting that BRCs enhance risk governance oversight and constrain managers from strategically biasing disclosure tone. BRCs' impact on mitigating upward tone management holds across different categories of risk disclosures. Further analysis shows that BRC size, independence, and the proportion of financial expert directors are negatively associated with upward tone in RFD, highlighting the importance of BRCs' structural factors. BRCs also improve disclosure readability while reducing uncertainty and ambiguity. Moreover, our cross-sectional analyses indicate that both mandatory and voluntary BRC adoption contribute to lower upward tone in RFD. However, this effect is significant only in the post-Dodd-Frank Act period, suggesting strengthened risk oversight following the Act's implementation. Finally, difference-in-differences tests provide further assurance against endogeneity concerns. Overall, our findings suggest that BRCs play a crucial role in curbing managerial incentives to manipulate RFD language, ultimately improving the quality of risk disclosures.