Disclosure Tone and Shareholder Litigation

Jonathan L. Rogers, Andrew Van Buskirk, Sarah L. C. Zechman
2011 Social Science Research Network  
We examine the relation between disclosure tone and shareholder litigation for a sample of firms involved in class action securities litigation. Specifically, we use text analysis software to investigate whether sued firms' earnings announcements are systematically more optimistic in tone than a sample of non-sued firms in similar economic circumstances and industries. We find that disclosures issued by sued firms during the class action damage period are significantly more optimistic than
more » ... ptimistic than those of non-sued firms. We also provide evidence that plaintiffs explicitly target the more optimistic disclosure language within earnings announcements when initiating shareholder lawsuits. Finally, we find that managers of sued firms issue more forecasts than their non-sued counterparts. In total, our results are consistent with the use of optimistic language and the issuance of management forecasts increasing firms' likelihood of being sued.
doi:10.2139/ssrn.1331608 fatcat:nurn6sehozffvcc4cn77dznecu