The composition of top management with general counsel
and voluntary information disclosure
$
Byungjin Kwak
a
, Byung T. Ro
a,b,
n
, Inho Suk
c
a
Graduate School of Finance and Accounting, Korea Advanced Institute of Science and Technology (KAIST), Republic of Korea
b
Krannert School of Management, Purdue University, 4021 Rawls Hall, West Lafayette, IN 47907, United States
c
School of Management, State University of New York at Buffalo, United States
article info
Article history:
Received 23 August 2011
Received in revised form
29 March 2012
Accepted 10 April 2012
Available online 23 April 2012
JEL classification:
G3
K41
M19
M41
M48
Keywords:
Top management composition
General counsel
Voluntary governance mechanism
Voluntary information disclosure
Management earnings forecasts
abstract
We examine whether the composition of top management with General Counsel (GC)
affects properties of management earnings forecasts disclosures. After controlling for
corporate governance and litigation risk, we find that firms with a GC in top manage-
ment are more likely to issue forecasts, particularly bad news forecasts, than other
firms. Further, their forecasts are less optimistic and more accurate than those issued by
others. Consistently, the stock price reaction to their forecast news is stronger. These
effects are more pronounced when the GC’s managerial status is higher. Overall, our
results suggest that GCs play an important role in corporate disclosures.
& 2012 Elsevier B.V. All rights reserved.
1. Introduction
We examine whether the composition of top management with General Counsel as an internal advisory and monitoring
mechanism for public firms is related to voluntary information disclosure. Many firms’ disclosure decisions are made by a
committee of top executives, including general counsel, and the composition of top management with a legal expert may
affect firms’ information disclosure. Unlike board composition, relatively little is known about whether the composition of
top management affects firms’ accounting and disclosure policies. Many firms have in-house legal counsel or an internal
legal department as part of their organizational structure. The chief counsel (or head of the legal department), called
General Counsel (GC) or Chief Legal Officer (CLO), plays two key roles for his (her) firm: (a) advising top management on
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journal homepage: www.elsevier.com/locate/jae
Journal of Accounting and Economics
0165-4101/$ - see front matter & 2012 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.jacceco.2012.04.001
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We thank S.P. Kothari (the editor) and two anonymous referees for their constructive comments and suggestions. We are also grateful to the
participants in the workshops at KAIST, Kookmin University, Korea University, Purdue University, Seoul National University, SUNY at Buffalo, Yonsei
University, and York University for their helpful comments and suggestions on earlier versions of the paper. We thank BestCalls and First Call for providing
us with the conference call data for our study.
n
Corresponding author. Tel.: þ1 765 494 4494; fax: þ1 765 496 7434.
E-mail address: btro@purdue.edu (B.T. Ro).
Journal of Accounting and Economics 54 (2012) 19–41