Journal article
Large Market Declines and Securities Litigation: Implications for Disclosing Adverse Earnings News
Management science, Vol.62(11), pp.3183-3198
11/01/2016
DOI: 10.1287/mnsc.2015.2306
Abstract
This study finds that large marketwide declines in stock prices are associated with higher litigation incidence and settlements even though marketwide events are legally irrelevant. The probability of litigation nearly doubles (from 0.29% to 0.55%) and the amount of settlements also doubles (from $5.0 million to $10.1 million) when earnings disclosures occur during a large market decline, even after controlling for the firm's market-adjusted return. Furthermore, judges with (without) specialized experience in securities litigation are more (less) likely to dismiss cases triggered by disclosures during large market declines. This pattern is consistent with experienced judges recognizing and dismissing weaker cases. Finally, managers are less likely to disclose adverse news at the end of trading days with large market declines. Although we cannot definitively identify the motive behind this pattern, it is consistent with managers recognizing increased litigation risk during large market declines.
Details
- Title: Subtitle
- Large Market Declines and Securities Litigation: Implications for Disclosing Adverse Earnings News
- Creators
- Dain C. Donelson - The University of Texas at AustinJustin J. Hopkins - University of Virginia
- Resource Type
- Journal article
- Publication Details
- Management science, Vol.62(11), pp.3183-3198
- Publisher
- Informs
- DOI
- 10.1287/mnsc.2015.2306
- ISSN
- 0025-1909
- eISSN
- 1526-5501
- Number of pages
- 16
- Grant note
- Darden Graduate School of Business at the University of Virginia Red McCombs School of Business at the University of Texas at Austin
- Language
- English
- Date published
- 11/01/2016
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984380557902771
Metrics
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