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http://ssrn.com/abstract=1331608
 
 

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Disclosure Tone and Shareholder Litigation


Jonathan L. Rogers


University of Colorado at Boulder - Leeds School of Business

Andrew Van Buskirk


Ohio State University (OSU) - Department of Accounting & Management Information Systems

Sarah L. C. Zechman


University of Chicago - Booth School of Business

May 1, 2011

Chicago Booth School of Business Research Paper No. 09-01
AAA 2010 Financial Accounting and Reporting Section (FARS) Paper

Abstract:     
We examine the relation between disclosure tone and shareholder litigation to determine whether managers’ use of optimistic language increases litigation risk. Using both general-purpose and context-specific text dictionaries to quantify tone, we find that plaintiffs target more optimistic statements in their lawsuits and that sued firms’ earnings announcements are unusually optimistic relative to other firms experiencing similar economic circumstances. These findings are consistent with optimistic language increasing litigation risk. In addition, we find incrementally greater litigation risk when managers are both unusually optimistic and engaging in abnormal selling, consistent with insider sales signaling an intent to mislead underlying the manager’s optimistic statements. Finally, we find that insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic.

Number of Pages in PDF File: 51

Keywords: Securities litigation, disclosure, tone, earnings announcements, insider trading

JEL Classification: G38, K22, M41, M45

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Date posted: January 23, 2009 ; Last revised: November 1, 2011

Suggested Citation

Rogers, Jonathan L. and Van Buskirk, Andrew and Zechman, Sarah L. C., Disclosure Tone and Shareholder Litigation (May 1, 2011). Chicago Booth School of Business Research Paper No. 09-01; AAA 2010 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: http://ssrn.com/abstract=1331608 or http://dx.doi.org/10.2139/ssrn.1331608

Contact Information

Jonathan L. Rogers
University of Colorado at Boulder - Leeds School of Business ( email )
419 UCB
Boulder, CO 80309-0419
United States
Andrew Van Buskirk (Contact Author)
Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )
2100 Neil Avenue
Columbus, OH 43210
United States
Sarah L. C. Zechman
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773)702-7136 (Phone)
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