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Disclosure and the outcome of securities litigation

Author

Listed:
  • Joshua Cutler

    (University of Houston)

  • Angela K. Davis

    (University of Oregon)

  • Kyle Peterson

    (University of Oregon)

Abstract

We examine the impact of disclosure by defendant firms on the outcome of securities fraud class actions. We hypothesize that firms issuing a higher quantity of disclosure 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 increases the likelihood that the judge will allow a lawsuit to proceed rather than dismissing it. Our results provide new insights to the literature on disclosure and litigation by studying the outcome rather than incidence of litigation, or the plaintiffs’ decision to sue. 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.

Suggested Citation

  • Joshua Cutler & Angela K. Davis & Kyle Peterson, 2019. "Disclosure and the outcome of securities litigation," Review of Accounting Studies, Springer, vol. 24(1), pages 230-263, March.
    • Handle: RePEc:spr:reaccs:v:24:y:2019:i:1:d:10.1007_s11142-018-9476-9
    DOI: 10.1007/s11142-018-9476-9
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    References listed on IDEAS

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    Cited by:

    1. Xiaomeng Chen & Meiting Lu & Yaowen Shan & Yizhou Zhang, 2023. "Securities class actions and conditional conservatism: Evidence from two legal events," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2441-2471, June.
    2. Allen H. Huang & Jianghua Shen & Amy Y. Zang, 2022. "The unintended benefit of the risk factor mandate of 2005," Review of Accounting Studies, Springer, vol. 27(4), pages 1319-1355, December.
    3. Mary Brooke Billings & Matthew C. Cedergren & Svenja Dube, 2021. "Does litigation change managers’ beliefs about the value of voluntarily disclosing bad news?," Review of Accounting Studies, Springer, vol. 26(4), pages 1456-1491, December.

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    More about this item

    Keywords

    Disclosure; Litigation; Securities fraud;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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