The Influence of Legal Liability on Corporate Financial Signaling

23 Journal of Corporation Law 209, Winter 1998

35 Pages Posted: 14 Aug 2013

See all articles by Robert M. Lawless

Robert M. Lawless

University of Illinois College of Law

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Bryan Bacon

Independent

Date Written: 1998

Abstract

Legal rules penalize managers more heavily for making direct statements than they do for engaging in financial signaling activity. Therefore, over time, managers will engage in more signaling activity than they would in the absence of legal regulation. It is unlikely that the law provides any social benefit by promoting the use of financial signaling over direct statements. This article develops a theoretical model describing how managers will be more likely to engage in financial signaling than making direct statements given legal liability. Firms that responded to a survey expressing greater concerns over legal liability were more likely to engage in financial signaling than firms without these concerns.

JEL Classification: K2, K22

Suggested Citation

Lawless, Robert M. and Ferris, Stephen P. and Bacon, Bryan, The Influence of Legal Liability on Corporate Financial Signaling (1998). 23 Journal of Corporation Law 209, Winter 1998. Available at SSRN: https://ssrn.com/abstract=2309638

Robert M. Lawless (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Bryan Bacon

Independent

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