The Effect of Managerial Litigation Risk on Earnings Warnings: Evidence from a Natural Experiment

• 成果类型: Article
• 署名作者: Huang, Ying; Li, Ningzhong; Yu, Yong; Zhou, Xiaolu
• 署名单位: University of Texas System; University of Texas Dallas; University of Texas System; University of Texas Austin; Chinese University of Hong Kong
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12336
• 发表日期: 2020
• 页码: 1161-1202
• 关键词: voluntary disclosure evidence; SHAREHOLDER LITIGATION; corporate governance; management; DIRECTORS; INFORMATION; forecasts; RESTATEMENTS; inference; lawsuits

摘要

We examine the causal effect of managerial litigation risk on managers' disclosure of earnings warnings in the face of large earnings shortfalls. Exploring the staggered adoption of universal demand (UD) laws as an exogenous decrease in litigation risk, we find that the adoption leads to a decrease in managers' issuance of earnings warnings, especially among firms facing a higher litigation risk prior to the adoption. In contrast, we find no change in managers' tendency to alert investors of impending large positive earnings surprises. Collectively, our results provide causal evidence that higher litigation risk incentivizes managers to issue more earnings warnings. Our results differ from Bourveau et al.'s finding of an increase in the frequency of management earnings forecasts after the adoption of UD laws. We reconcile our findings with theirs by demonstrating that the effect of adopting UD laws on management earnings forecasts depends critically on forecast horizon: The adoption increases long-horizon forecasts, but decreases short-horizon forecasts.