44 Pages Posted: 18 Jul 2010 Last revised: 1 Jun 2012
Date Written: May 31, 2012
This study investigates whether the timely revelation of bad earnings news is associated with a lower incidence of litigation. The timeliness of earnings news is captured by a new measure based on the evolution of the consensus analyst earnings forecast. Holding total bad earnings news and other determinants of litigation constant, we find that earlier revelation of bad earnings news lowers the likelihood of litigation. This result holds for both settled and dismissed lawsuits. Further, we reconcile our findings with prior work that measures timeliness using managerial warnings via press releases. These tests suggest our findings are attributable to the ability of our timeliness measure to capture bad earning news revealed through disclosure channels beyond press releases.
Keywords: Securities litigation, disclosure, analyst forecasts, earnings news
JEL Classification: K22, K41, M41
Suggested Citation: Suggested Citation
Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard and Yu, Yong, The Timeliness of Bad Earnings News and Litigation Risk (May 31, 2012). Accounting Review, Forthcoming; McCombs Research Paper Series No. IROM-08-10. Available at SSRN: https://ssrn.com/abstract=1641342 or http://dx.doi.org/10.2139/ssrn.1641342