The Impact of Securities Litigation Reform on the Disclosure of Forward‐Looking Information By High Technology Firms

The Impact of Securities Litigation Reform on the Disclosure of Forward‐Looking Information By... This study evaluates corporate voluntary disclosure of forward‐looking information under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Using a sample of 523 computer hardware, computer software, and pharmaceutical firms, we find a significant increase in both the frequency of firms issuing earnings and sales forecasts and the mean number of forecasts issued following the Act’s passage. To provide more direct evidence that our findings are attributable to the Act reducing firms’ legal exposure, we develop a proxy for litigation risk and examine whether the increase in disclosure is more pronounced for firms at greatest risk of a lawsuit. As expected, we find that the change in disclosure is increasing in firms’ ex ante risk of litigation. Finally, we report that the safe harbor had no adverse impact on the quality of forward‐looking information. Forecast errors, whether directional or non‐directional, were not significantly affected by the Act’s passage. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

The Impact of Securities Litigation Reform on the Disclosure of Forward‐Looking Information By High Technology Firms

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Publisher
Wiley
Copyright
University of Chicago on behalf of the Institute of Professional Accounting, 2001
ISSN
0021-8456
eISSN
1475-679X
D.O.I.
10.1111/1475-679X.00014
Publisher site
See Article on Publisher Site

Abstract

This study evaluates corporate voluntary disclosure of forward‐looking information under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Using a sample of 523 computer hardware, computer software, and pharmaceutical firms, we find a significant increase in both the frequency of firms issuing earnings and sales forecasts and the mean number of forecasts issued following the Act’s passage. To provide more direct evidence that our findings are attributable to the Act reducing firms’ legal exposure, we develop a proxy for litigation risk and examine whether the increase in disclosure is more pronounced for firms at greatest risk of a lawsuit. As expected, we find that the change in disclosure is increasing in firms’ ex ante risk of litigation. Finally, we report that the safe harbor had no adverse impact on the quality of forward‐looking information. Forecast errors, whether directional or non‐directional, were not significantly affected by the Act’s passage.

Journal

Journal of Accounting ResearchWiley

Published: Sep 1, 2001

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