Abstract

http://ssrn.com/abstract=998590
 
 

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Litigation Risk and Voluntary Disclosure: The Use of Meaningful Cautionary Language


Karen K. Nelson


Rice University - Jones Graduate School of Business

Adam C. Pritchard


University of Michigan Law School

August 2007

2nd Annual Conference on Empirical Legal Studies Paper

Abstract:     
This study investigates firms' voluntary disclosure of cautionary language under the safe harbor of the Private Securities Litigation Reform Act of 1995. We examine three disclosure attributes indicative of meaningful cautionary language under the statute. Consistent with predictions, we find that firms subject to greater litigation risk disclose more cautionary language, update the disclosure more from year-to-year, and use more readable language. The response to changes in litigation risk is asymmetric; firms increase their use of cautionary language when litigation risk increases but do not remove cautionary language when litigation risk decreases. Taken together, our evidence suggests that firms adopt disclosure policies to reduce the expected costs of litigation.

Number of Pages in PDF File: 55

Keywords: Voluntary disclosure, litigation risk, safe harbor, forward-looking information

JEL Classification: M41, M45, K22

working papers series


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Date posted: July 7, 2007  

Suggested Citation

Nelson, Karen K. and Pritchard, Adam C., Litigation Risk and Voluntary Disclosure: The Use of Meaningful Cautionary Language (August 2007). 2nd Annual Conference on Empirical Legal Studies Paper. Available at SSRN: http://ssrn.com/abstract=998590 or http://dx.doi.org/10.2139/ssrn.998590

Contact Information

Karen K. Nelson (Contact Author)
Rice University - Jones Graduate School of Business ( email )
337 McNair Hall
6100 South Main Street
Houston, TX 77005
United States
713-348-5388 (Phone)
713-348-6331 (Fax)
Adam C. Pritchard
University of Michigan Law School ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4048 (Phone)
734-647-7349 (Fax)

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