Securities Law Expertise and Corporate Disclosure
50 Pages Posted: 18 Sep 2015 Last revised: 7 Oct 2016
Date Written: October 2016
Securities lawyers play a central role in corporate disclosure by making, reviewing, and guiding disclosure decisions. Using the setting of SEC comment letters, we first examine how the involvement of external legal counsel (ELC) relates to the resolution of SEC disclosure inquiries. Our evidence suggests that ELC frequently resists disclosing new information by requesting the SEC redact information from public disclosure and amending prior disclosures less frequently. We then examine and find that ELC’s participation with the inquiry response has externalities that relate to the company’s future disclosures and financial reporting outcomes. Specifically, when ELC is involved we find evidence of greater qualified or cautionary language, more readable disclosures, and a reduced likelihood of negative disclosure outcomes. Overall, our evidence suggests that ELC’s typical role is to resist the disclosure of new information to market participants and protect the company by mitigating future negative financial disclosure outcomes.
Keywords: External advisor, legal counsel, securities law, disclosure, SEC, comment letters, regulation
JEL Classification: M41
Suggested Citation: Suggested Citation