Managerial Disclosures and Shareholder Litigation

Posted: 8 Jul 1998

See all articles by Brett Trueman

Brett Trueman

University of California, Los Angeles (UCLA) - Anderson School of Management

Multiple version iconThere are 2 versions of this paper

Abstract

This paper explores the link between shareholder lawsuits brought under Rule 10b-5 of the Securities Exchange Act of 1934 and managerial disclosures of prospective information. Two scenarios are examined. In the first, the manager's information is assumed to be such that there exists an affirmative duty to disclose under Rule 10b-5. In this setting it is shown that the manager will have a tendency to disclose either good news or news that is sufficiently bad. Further, the good news disclosures are expected to be more precise than those that reflect unfavorable information. It is also demonstrated that the probability of the manager making a disclosure will increase with both the precision of his information and the variability of his firm's earnings. In the second scenario, the manager's information is such that there is no affirmative duty to disclose under Rule 10b-5. In this setting, it is predicted that the manager will withhold news that is sufficiently bad and will, in some cases, also withhold good news. Several of these predictions are consistent with documented empirical regularities.

JEL Classification: C60, G38, K22

Suggested Citation

Trueman, Brett, Managerial Disclosures and Shareholder Litigation. Available at SSRN: https://ssrn.com/abstract=105848

Brett Trueman (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-4720 (Phone)
310-267-2193 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,269
PlumX Metrics