Abstract

http://ssrn.com/abstract=1952641
 
 

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Disclosure Tone and Shareholder Litigation


Jonathan L. Rogers


University of Chicago - Booth 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

November 1, 2011

Accounting Review, Vol. 86, No. 6, 2011

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 engage in abnormal selling. This finding suggests that firms can mitigate litigation risk by ensuring that optimistic statements are not contradicted by insider selling. 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, M48

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Date posted: November 2, 2011  

Suggested Citation

Rogers, Jonathan L. and Van Buskirk, Andrew and Zechman, Sarah L. C., Disclosure Tone and Shareholder Litigation (November 1, 2011). Accounting Review, Vol. 86, No. 6, 2011. Available at SSRN: http://ssrn.com/abstract=1952641

Contact Information

Jonathan L. Rogers (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S Woodlawn
Chicago, IL 60637-1561
United States
773-834-0161 (Phone)
Andrew Van Buskirk
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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