Does litigation change managers’ beliefs about the value of voluntarily disclosing bad news?

Abstract Research suggests that earnings-disclosure-related litigation causes managers to reduce subsequent disclosure, perhaps stemming from a belief even their good faith disclosures will cause them trouble. This paper considers unexplored dimensions of disclosure and alternative channels provide additional evidence speaks how shapes managers’ strategies. Consistent with Skinner (1994)’s classic legal liability hypothesis, we find that, while delay forecasts positive earnings news following litigation, they increase the frequency timeliness bad forecasts. Moreover, many who were nonguiders prior facing scrutiny begin guiding litigation. Managers also maintain (if not increase) information via press releases during conference calls Supporting notion use walk down expectations, analyses document an in likelihood lawsuit firms report beat consensus post-lawsuit period. Collectively, our continue view as valuable tool firms’ environments reduces expected costs. In so doing, it supports important viewpoint respond well effectiveness disciplining mechanism.