Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes
Houston, Joel F., Lin, Chen, Liu, Sibo, Wei, Lai
The Accounting Review · 2019 · Volume 94 · Issue 5
Abstract
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-in-differences 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. JEL Classifications:D80; G14; K22; K41; M41.
Keywords
earnings forecasts, litigation risk, shareholder protection
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