Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes

Joel F. HOUSTON, Chen LIN, Sibo LIU, Lai WEI

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based, fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples and outcome variables.
Original languageEnglish
Pages (from-to)247-272
Number of pages26
JournalThe Accounting Review
Volume94
Issue number5
Early online date18 Jan 2019
DOIs
Publication statusPublished - Sep 2019

Fingerprint

Risk disclosure
Voluntary disclosure
Litigation risk
Management earnings forecasts
News
Fixed effects
Causal inference
Difference-in-differences
Earnings forecasts

Bibliographical note

Lin gratefully acknowledges the financial support from The University of Hong Kong and the National Natural Science Foundation of China (No. 71790601).

Keywords

  • earnings forecasts
  • litigation risk
  • shareholder protection

Cite this

@article{077d32a47fd14785b662b4addf9c5db1,
title = "Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes",
abstract = "This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based, fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples and outcome variables.",
keywords = "earnings forecasts, litigation risk, shareholder protection",
author = "HOUSTON, {Joel F.} and Chen LIN and Sibo LIU and Lai WEI",
note = "Lin gratefully acknowledges the financial support from The University of Hong Kong and the National Natural Science Foundation of China (No. 71790601).",
year = "2019",
month = "9",
doi = "10.2308/accr-52355",
language = "English",
volume = "94",
pages = "247--272",
journal = "Accounting Review",
issn = "0001-4826",
publisher = "American Accounting Association",
number = "5",

}

Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes. / HOUSTON, Joel F.; LIN, Chen; LIU, Sibo; WEI, Lai.

In: The Accounting Review, Vol. 94, No. 5, 09.2019, p. 247-272.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

TY - JOUR

T1 - Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes

AU - HOUSTON, Joel F.

AU - LIN, Chen

AU - LIU, Sibo

AU - WEI, Lai

N1 - Lin gratefully acknowledges the financial support from The University of Hong Kong and the National Natural Science Foundation of China (No. 71790601).

PY - 2019/9

Y1 - 2019/9

N2 - This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based, fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples and outcome variables.

AB - This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based, fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples and outcome variables.

KW - earnings forecasts

KW - litigation risk

KW - shareholder protection

U2 - 10.2308/accr-52355

DO - 10.2308/accr-52355

M3 - Journal Article (refereed)

VL - 94

SP - 247

EP - 272

JO - Accounting Review

JF - Accounting Review

SN - 0001-4826

IS - 5

ER -