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Managerial Disclosures and Shareholder Litigation

Managerial Disclosures and Shareholder Litigation This paper explores the link between shareholder lawsuits brought under Rule 10b-5 of the Securities Exchange Act of 1934 and managerial disclosures of prospective information. When the manager's information is such that there is no affirmative duty to disclose under Rule 10b-5, previous research has shown that the manager will withhold his information if it is sufficiently unfavorable and will disclose it otherwise. When the manager's information is such that there exists an affirmative duty to disclose under Rule 10b-5, it is shown here that the manager will release either good news or news that is sufficiently bad. Further, the good news disclosures are expected to be more precise than those that reflect unfavorable information. It is also demonstrated that the probability of a disclosure will increase with both the precision of the manager's information and the variability of his firm's earnings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Managerial Disclosures and Shareholder Litigation

Trueman, Brett
Review of Accounting Studies , Volume 2 (2) – Jan 13, 2005
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References (12)

Publisher
Springer Journals
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
DOI
10.1023/A:1018303309137
Publisher site
See Article on Publisher Site

Abstract

This paper explores the link between shareholder lawsuits brought under Rule 10b-5 of the Securities Exchange Act of 1934 and managerial disclosures of prospective information. When the manager's information is such that there is no affirmative duty to disclose under Rule 10b-5, previous research has shown that the manager will withhold his information if it is sufficiently unfavorable and will disclose it otherwise. When the manager's information is such that there exists an affirmative duty to disclose under Rule 10b-5, it is shown here that the manager will release either good news or news that is sufficiently bad. Further, the good news disclosures are expected to be more precise than those that reflect unfavorable information. It is also demonstrated that the probability of a disclosure will increase with both the precision of the manager's information and the variability of his firm's earnings.

Journal

Review of Accounting Studies – Springer Journals

Published: Jan 13, 2005

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