Abstract

http://ssrn.com/abstract=1641342
 
 

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The Timeliness of Bad Earnings News and Litigation Risk


Dain C. Donelson


University of Texas at Austin - McCombs School of Business

John M. McInnis


University of Texas at Austin - Department of Accounting

Richard Mergenthaler Jr.


University of Iowa - Henry B. Tippie College of Business

Yong Yu


University of Texas at Austin

May 31, 2012

Accounting Review, Forthcoming
McCombs Research Paper Series No. IROM-08-10

Abstract:     
This study investigates whether the timely revelation of bad earnings news is associated with a lower incidence of litigation. The timeliness of earnings news is captured by a new measure based on the evolution of the consensus analyst earnings forecast. Holding total bad earnings news and other determinants of litigation constant, we find that earlier revelation of bad earnings news lowers the likelihood of litigation. This result holds for both settled and dismissed lawsuits. Further, we reconcile our findings with prior work that measures timeliness using managerial warnings via press releases. These tests suggest our findings are attributable to the ability of our timeliness measure to capture bad earning news revealed through disclosure channels beyond press releases.

Number of Pages in PDF File: 44

Keywords: Securities litigation, disclosure, analyst forecasts, earnings news

JEL Classification: K22, K41, M41

working papers series


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Date posted: July 18, 2010 ; Last revised: June 1, 2012

Suggested Citation

Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard and Yu, Yong, The Timeliness of Bad Earnings News and Litigation Risk (May 31, 2012). Accounting Review, Forthcoming; McCombs Research Paper Series No. IROM-08-10. Available at SSRN: http://ssrn.com/abstract=1641342 or http://dx.doi.org/10.2139/ssrn.1641342

Contact Information

Dain C. Donelson (Contact Author)
University of Texas at Austin - McCombs School of Business ( email )
Austin, TX 78712
United States
512-232-3733 (Phone)
John M. McInnis
University of Texas at Austin - Department of Accounting ( email )
Austin, TX 78712
United States
512-232-6791 (Phone)
Richard Dean Mergenthaler Jr.
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0848 (Phone)
Yong Yu
University of Texas at Austin ( email )
1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)
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