Securities Law Expertise and Corporate Disclosure

50 Pages Posted: 18 Sep 2015 Last revised: 7 Oct 2016

Zahn Bozanic

Ohio State University (OSU) - Fisher College of Business

Preeti Choudhary

University of Arizona, Eller College of Management

Kenneth J. Merkley

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: October 2016

Abstract

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

Bozanic, Zahn and Choudhary, Preeti and Merkley, Kenneth J., Securities Law Expertise and Corporate Disclosure (October 2016). Available at SSRN: https://ssrn.com/abstract=2662096 or http://dx.doi.org/10.2139/ssrn.2662096

Zahn Bozanic (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Preeti Choudhary

University of Arizona, Eller College of Management ( email )

Department of History
Tucson, AZ 85721
United States

Kenneth J. Merkley

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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