Bogging down investors: An unintended consequence of litigation risk

• 成果类型: Article
• 署名作者: Fu, Siwen; Wang, Ke; Zhang, Liandong; Zheng, Liu
• 署名单位: Chinese Academy of Sciences; University of Science & Technology of China, CAS; University of Alberta; Singapore Management University; City University of Hong Kong
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.13027
• 发表日期: 2025
• 页码: 1045-1078
• 关键词: voluntary disclosure evidence; annual-report readability; Textual analysis; SHAREHOLDER LITIGATION; CURRENT EARNINGS; plain english; 10-k; INFORMATION; complexity; management

摘要

Securities litigation risk is a well-recognized yet underexplored source of financial reporting complexity or unreadability. This study examines the effect of litigation risk on the readability of corporate financial reports. The 1999 Silicon Graphics Inc. (SGI) court ruling unexpectedly reduced litigation risk for firms within the Ninth Circuit Court's jurisdiction. Using a difference-in-differences design centered on the SGI court ruling, we find that, while the readability of financial reports generally declines over the sample period, treated firms in the Ninth Circuit experience a comparatively smaller decline in readability than control firms in other states after the ruling. Put differently, treated firms experience a relative improvement in reporting readability following the ruling. This effect is concentrated among firms prone to securities litigation and those with greater external financing needs, but it is muted for firms engaging in earnings management. Furthermore, improved reporting readability among treated firms can be partially attributed to alleviated concerns about the adequacy of cautionary language, as evidenced by a significant decrease in negative forward-looking statements, particularly risk-related ones. Collectively, our findings suggest that securities litigation risk contributes to reduced readability in financial reporting. L'enlisement des investisseurs : une cons & eacute;quence inattendue du risque de litigeLe risque de litige en mati & egrave;re de valeurs mobili & egrave;res est une source bien connue, mais insuffisamment & eacute;tudi & eacute;e, de complexit & eacute; ou d'illisibilit & eacute; de l'information financi & egrave;re. Cette & eacute;tude examine l'effet du risque de litige sur la lisibilit & eacute; des & eacute;tats financiers des entreprises. La d & eacute;cision de justice rendue en 1999 dans l'affaire Silicon Graphics Inc. a r & eacute;duit de mani & egrave;re inattendue le risque de litige pour les entreprises relevant de la comp & eacute;tence de la << Cour du neuvi & egrave;me circuit >> (Ninth Circuit Court). En utilisant un mod & egrave;le de diff & eacute;rence dans les diff & eacute;rences centr & eacute; sur la d & eacute;cision de justice de SGI, nous constatons que, bien que la lisibilit & eacute; des & eacute;tats financiers diminue g & eacute;n & eacute;ralement au cours de la p & eacute;riode d'& eacute;chantillonnage, les entreprises trait & eacute;es du neuvi & egrave;me circuit connaissent une baisse de lisibilit & eacute; comparativement plus faible que les entreprises de contr & ocirc;le dans d'autres & Eacute;tats apr & egrave;s la d & eacute;cision de justice. En d'autres termes, les entreprises trait & eacute;es connaissent une am & eacute;lioration relative de la lisibilit & eacute; des divulgations apr & egrave;s l'arr & ecirc;t. Cet effet se concentre sur les entreprises sujettes & agrave; des litiges en mati & egrave;re de valeurs mobili & egrave;res et sur celles qui ont des besoins de financement externe plus importants, mais il est att & eacute;nu & eacute; pour les entreprises qui pratiquent la gestion du r & eacute;sultat. En outre, l'am & eacute;lioration de la lisibilit & eacute; des divulgations parmi les entreprises trait & eacute;es peut & ecirc;tre partiellement attribu & eacute;e & agrave; l'att & eacute;nuation des pr & eacute;occupations concernant l'ad & eacute;quation du langage de mise en garde, comme le montre une diminution significative des d & eacute;clarations prospectives n & eacute;gatives, en particulier celles qui sont li & eacute;es au risque. Dans l'ensemble, nos r & eacute;sultats sugg & egrave;rent que le risque de litige en mati & egrave;re de valeurs mobili & egrave;res contribue & agrave; r & eacute;duire la lisibilit & eacute; de l'information financi & egrave;re.