Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes

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

Suggested Citation: Suggested Citation

Houston, Joel F. and Lin, Chen and Liu, Sibo and Wei, Lai, Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes (December 19, 2018). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2653207 or http://dx.doi.org/10.2139/ssrn.2653207