Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes
53 Pages Posted: 31 Aug 2015 Last revised: 19 Dec 2018
Date Written: December 19, 2018
This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms’ litigation risk. Using a matching-based, fixed-effect difference-indifferences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples and outcome variables.
Keywords: earnings forecasts, litigation risk, shareholder protection
JEL Classification: D80, G14, K22, K41, M41
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