Corporate In-House Legal Counsel as Voluntary Governance Mechanism and Quality of Voluntary Disclosure: The Case of Management Earnings Forecast

55 Pages Posted: 27 May 2008

See all articles by Byungjin Kwak

Byungjin Kwak

KAIST-Graduate School of Finance

Byung T. Ro

Purdue University - Krannert School of Management

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management

Date Written: May 2008

Abstract

The key role of corporate in-house legal counsel as a voluntary governance mechanism is to advise managers on various matters including regulations, legal issues, and litigation risk and to monitor managers' behavior against shareholders' interest. Using the in-house status of counsel as a proxy for a firm's perception of the importance of self-governance and legal security, we find that firms with high-status counsel issue more frequent management earnings forecasts and that their forecasts are less biased and more accurate than those issued by other firms. Consistent with this, the stock price reaction to forecast news is stronger for the former firms. Together, the results suggest that the role of in-house counsel is positively related to the level and quality of management forecast disclosure.

Keywords: In-house legal counsel, voluntary internal governance, litigation risk, voluntary information disclosure, management earnings forecasts

Suggested Citation

Kwak, Byungjin and Ro, Byung T. and Suk, Inho, Corporate In-House Legal Counsel as Voluntary Governance Mechanism and Quality of Voluntary Disclosure: The Case of Management Earnings Forecast (May 2008). KAIST Business School Working Paper Series No. 2008-006. Available at SSRN: https://ssrn.com/abstract=1137528 or http://dx.doi.org/10.2139/ssrn.1137528

Byungjin Kwak (Contact Author)

KAIST-Graduate School of Finance ( email )

87 Hoegiro
Dongdaemun-Gu
Seoul, 130-722
Korea
+82-2-958-3417 (Phone)

Byung T. Ro

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-4512 (Phone)
765-494-9658 (Fax)

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management ( email )

342 Jacobs Management Center
Buffalo, NY 14260-4000
United States
716-645-3215 (Phone)

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