The Timeliness of Bad Earnings News and Litigation Risk

This study investigates whether the timely revelation of bad earnings news is associated with a lower incidence of litigation. The timeliness of earnings news is captured by a new measure based on the evolution of the consensus analyst earnings forecast. Holding total bad earnings news and other det...

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Bibliographic Details
Published inThe Accounting review Vol. 87; no. 6; pp. 1967 - 1991
Main Authors Donelson, Dain C., McInnis, John M., Mergenthaler, Richard D., Yu, Yong
Format Journal Article
LanguageEnglish
Published Sarasota American Accounting Association 01.11.2012
Subjects
Accounting
Analytical forecasting
Business structures
Disclosure
Earnings
Earnings forecasting
Experimental methods
Lawsuits
Litigation
Net income
Press
Press releases
Probability theory
Regression analysis
Stock prices
Studies
Temporal currency
U.S.A
Warnings
United States > US
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Summary:This study investigates whether the timely revelation of bad earnings news is associated with a lower incidence of litigation. The timeliness of earnings news is captured by a new measure based on the evolution of the consensus analyst earnings forecast. Holding total bad earnings news and other determinants of litigation constant, we find that earlier revelation of bad earnings news lowers the likelihood of litigation. This result holds for both settled and dismissed lawsuits. Further, we reconcile our findings with prior work that measures timeliness using managerial warnings via press releases. These tests suggest our findings are attributable to the ability of our timeliness measure to capture bad earning news revealed through disclosure channels beyond press releases.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0001-4826
1558-7967
DOI:10.2308/accr-50221