THESIS
2016
Abstract
Essay 1: Litigation Risk and Voluntary Disclosure via 8-K Filings
This paper studies how litigation risk affects the firm’s voluntary disclosure via 8-K filings to
the SEC. I use the political party affiliation of federal court judges as an instrument to measure the
firm’s litigation risk. Using this approach, I find that with a higher litigation risk exposure, firms
make fewer voluntary disclosures via SEC’s Form 8-K. The effect on disclosure is stronger among
large firms, as large firms have “deep pockets” are more affected by litigation risks, and make
fewer disclosure as a result. Besides, the effect is stronger for disclosure that contains material
forward-looking earnings information, consistent with the notion that litigation is of a greater
concern for disclosure of earn...[
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Essay 1: Litigation Risk and Voluntary Disclosure via 8-K Filings
This paper studies how litigation risk affects the firm’s voluntary disclosure via 8-K filings to
the SEC. I use the political party affiliation of federal court judges as an instrument to measure the
firm’s litigation risk. Using this approach, I find that with a higher litigation risk exposure, firms
make fewer voluntary disclosures via SEC’s Form 8-K. The effect on disclosure is stronger among
large firms, as large firms have “deep pockets” are more affected by litigation risks, and make
fewer disclosure as a result. Besides, the effect is stronger for disclosure that contains material
forward-looking earnings information, consistent with the notion that litigation is of a greater
concern for disclosure of earnings related material information.
Essay 2: Combining Good News with Bad News: A Tactic to Deter Strike Suits
This paper investigates the combination of good news and bad news in firm’s forward-looking
disclosure. I posit that negative words used in news combination can serve as meaningful precautionary
statements that meet the requirement of the Safe Harbor and deter shareholder lawsuits.
Consistent with this explanation, I find that press releases with more negative words in news combination
sentences are associated with a lower rate of lawsuit filings. The lawsuit deterrence effect
is stronger for firms that are more profitable, financially healthier, and with a faster sales growth,
suggesting that the deterrence is through reducing frivolous strike suits targeting at the innocent
and good firms. I also find that firms are more likely to use combined disclosure when facing
a higher litigation risk in ex ante. Additional tests show that negative words used in combined
disclosure are not followed by bad future performance, and stockholders do not react negatively
to the negative words in combined disclosure.
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