Disclosure and the Outcome of Securities Litigation

Review of Accounting Studies, 24(1): 230-263 (2019).

48 Pages Posted: 5 Jun 2015 Last revised: 29 Aug 2019

See all articles by Joshua Cutler

Joshua Cutler

Boise State University, College of Business and Economics, Department of Accountancy

Angela K. Davis

University of Oregon

Kyle Peterson

University of Oregon - Charles H. Lundquist School of Business

Date Written: October 16, 2018

Abstract

We examine the impact of disclosure by defendant firms on the outcome of securities fraud class actions. We hypothesize that firms issuing more disclosures will experience more adverse litigation outcomes, given the strict pleading standards of the Private Securities Litigation Reform Act (PSLRA). Using broad measures of disclosure derived from press releases issued during the class period, we find that more disclosure by the defendant firm does indeed lead to a higher likelihood of settlement rather than dismissal. We strengthen the inference that the features of the PSLRA create a positive relationship between overall disclosure and the likelihood of settlement by showing that the relationship holds when controlling for forward-looking disclosure and ex ante litigation risk, and by providing evidence that more public disclosures allow plaintiffs to present more extensive cases.

Keywords: disclosure, litigation, securities fraud

JEL Classification: K22, G18, G38

Suggested Citation

Cutler, Joshua and Davis, Angela K. and Peterson, Kyle, Disclosure and the Outcome of Securities Litigation (October 16, 2018). Review of Accounting Studies, 24(1): 230-263 (2019)., Available at SSRN: https://ssrn.com/abstract=2614609 or http://dx.doi.org/10.2139/ssrn.2614609

Joshua Cutler

Boise State University, College of Business and Economics, Department of Accountancy ( email )

Boise, ID
United States

Angela K. Davis (Contact Author)

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3210 (Phone)

Kyle Peterson

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

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