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
Date Written: May 2008
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
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