بحث درباره شکایت های قانونی سهامداران و تغییر در رفتار افشاگری

Rogers and VanBuskirk [2008. Shareholder litigation and changes in disclosure behavior. Journal of Accounting and Economics 40, 3–73] examine changes in sued firms’ disclosure policies between the pre-lawsuit and post-lawsuit periods. They find that these firms decrease the magnitude and precision of disclosures following the lawsuits. The authors conclude that managers of sued firms perceive disclosure to contribute to (rather than decrease) the probability of being sued. While the evidence showing that the magnitude and precision of disclosure decreases post-lawsuit appears to be robust, I raise some questions about what we learn from this finding.

The nature of the relation between disclosure and litigation risk is a subject of considerable academic research. In theory, higher disclosure should make it harder for plaintiffs to claim the firm was withholding relevant information from the market. Moreover, a policy of more frequent disclosure should decrease the likelihood of large stock-price drops, which tend to precipitate the filing of lawsuits. These effects suggest that higher disclosure should be associated with lower litigation risk. However, there is also the risk that plaintiffs will allege that the firm was intentionally misleading the market through its disclosures, for example, if disclosures of earnings forecasts ended up ex post being overly optimistic. This suggests that disclosure may contribute positively to litigation risk. An understanding of the ways in which disclosure affects litigation risk is an important question. From firms’ perspective, litigation is very costly. Firms have an interest in adopting policies that minimize these costs. From a policy perspective, market transparency is enhanced when firms adopt more open disclosure policies. Policy makers would obviously be concerned if private litigation was causing firms to limit their disclosures. Rogers and VanBuskirk attempt a new approach towards this important question, by examining whether firms change their disclosure policies following a class-action lawsuit. They posit that managers who feel that company disclosures contributed to the lawsuit will decrease disclosure following the lawsuit. In contrast, managers who feel that their disclosures helped lessen the damage of the lawsuit will likely increase disclosure following the lawsuit. Findings are supportive of the former: both the quantity and the quality of disclosures decrease following firms’ class-action lawsuits. My comments center on the contribution of this finding and the extent to which it informs the debate over the relation between disclosure and litigation risk. While the authors frame their analysis within this debate, it is not clear whether changes in disclosure for sued firms teaches us something that can be generalized across all firms. Section 2 of the paper discusses the extent to which the findings in this paper contribute to the broader debate on the relation between disclosure and litigation risk. Section 3 relates the Rogers and VanBuskirk findings to the literature on the conservatism of disclosure. Section 4 concludes.

Rogers and VanBuskirk find that managers of sued firms significantly decrease both the quantity and quality of disclosure following the filing of a class-action lawsuit. The authors have been quite careful in their empirical analysis, and results are robust to a variety of alternative specifications. They also provide a strong motivation for their analysis: what is the true nature of the relation between disclosure and litigation risk. This topic is of strong interest among academics, firms, and policy makers. While the paper offers both a strong motivation and a robust set of empirical results, my concerns focus on the extent to which empirical results increase our understanding of the primary question being asked, i.e., on the relation between disclosure and litigation risk. While sued firms may conclude that disclosure increased their litigation costs, it is quite plausible that non-sued firms conclude that disclosure decreased their litigation costs. Results on the sample of sued firms cannot be generalized to the broader population of firms. Thus, we are still left with the same question: what is the nature of the relation between disclosure and litigation risk?