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Does Disclosure Deter or Trigger Litigation?

32 Pages Posted: 15 Oct 2004 Last revised: 26 Oct 2011

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics

Michelle Lowry

Drexel University

Susan Shu

Boston College - Carroll School of Management

Abstract

Securities litigation poses large costs to firms. The risk of litigation is heightened when firms have unexpectedly large earnings disappointments. Previous literature presents mixed evidence on whether voluntary disclosure of the bad news prior to regularly scheduled earnings announcements deters or triggers litigation. We show that the counterintuitive finding in prior literature that disclosure triggers litigation could be driven by the endogeneity between disclosure and litigation. Using a simultaneous equations methodology, we find no evidence that disclosure triggers litigation. In fact, consistent with economic arguments, our evidence suggests that disclosure potentially deters certain types of litigation.

Keywords: Shareholder litigation, Earnings disclosures, Endogeneity

JEL Classification: M41, K22, G39, C30

Suggested Citation

Field, Laura Casares and Lowry, Michelle and Shu, Susan, Does Disclosure Deter or Trigger Litigation?. Journal of Accounting & Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=604683

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States
302-831-3810 (Phone)

Michelle B. Lowry

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

Susan Shu (Contact Author)

Boston College - Carroll School of Management ( email )

Boston College
140 Commonwealth Ave.
Chestnut Hill, MA 02167
United States
617-552-1759 (Phone)

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