Do textual risk disclosures reveal corporate risk? Evidence from US fintech corporations

Current measures based on quantitative data do not fully assess the fintech corporate risk. This paper advocates a new text-based measure for estimating fintech corporate risk: fintech risk sentiment index, which is constructed from perspectives of investors and managers respectively based on qualitative textual risk disclosures. The paper establishes the relationship between the proposed index and fintech corporate bankruptcy risk to examine how well our measure of fintech corporate risk is. Based on 78,084 sentences collected from 229 Form 10-K documents of 33 U.S. fintech companies from 2015 to 2021, we find that the fintech risk sentiment index helps explain fintech corporate bankruptcy. Especially the managers' fintech risk sentiment index has a more significant impact on corporate bankruptcy compared to investors' fintech risk sentiment index. The findings prove that the fintech risk sentiment index can reveal fintech corporation instability, which helps regulators to augment early warning for the fintech industry.