The Composition of Top Management with General Counsel and Voluntary Information Disclosure

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 management 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.

[1]  J. Francis,et al.  SHAREHOLDER LITIGATION AND CORPORATE DISCLOSURES , 1994 .

[2]  David Aboody,et al.  CEO stock option awards and the timing of corporate voluntary disclosures , 2000 .

[3]  Marilyn F. Johnson,et al.  Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995 , 2000 .

[4]  The Quality of Discretionary Disclosure Under Litigation Risk , 2006 .

[5]  Brett Trueman,et al.  Managerial Disclosures and Shareholder Litigation , 1997 .

[6]  Marilyn F. Johnson,et al.  Do the Merits Matter More? The Impact of the Private Securities Litigation Reform Act , 2006 .

[7]  Sri S. Sridhar,et al.  Disclosure‐Disciplining Mechanisms: Capital Markets, Product Markets, and Shareholder Litigation , 2002 .

[8]  Yuan Zhang,et al.  Regulation FD and the Financial Information Environment: Early Evidence , 2003 .

[9]  Patricia M. Dechow,et al.  Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC* , 1996 .

[10]  Beverly R. Walther,et al.  Earnings Preannouncement Strategies , 2000 .

[11]  Y. Loewenstein.  The Accounting Review , 1972 .

[12]  Shuping Chen,et al.  Is silence golden? An empirical analysis of firms that stop giving quarterly earnings guidance , 2005 .

[13]  D. Larcker,et al.  Corporate Governance, Accounting Outcomes, and Organizational Performance , 2007 .

[14]  A. Pritchard,et al.  Litigation Risk and Voluntary Disclosure: The Use of Meaningful Cautionary Language , 2007 .

[15]  Deborah A. DeMott.  The Discrete Roles of General Counsel , 2005 .

[16]  Douglas J. Skinner.  WHY FIRMS VOLUNTARILY DISCLOSE BAD-NEWS , 1994 .

[17]  Susan Scholz,et al.  The Circumstances and Legal Consequences of Non‐GAAP Reporting: Evidence from Restatements* , 2004 .

[18]  Peter D. Wysocki,et al.  Do Managers Withhold Bad News? , 2005 .

[19]  Jonathan L. Rogers,et al.  Credibility of Management Forecasts , 2003 .

[20]  Robert E. Verrecchia.  Information quality and discretionary disclosure , 1990 .

[21]  Constance E. Bagley,et al.  Winning Legally: How To Use The Law To Create Value, Marshal Resources, And Manage Risk , 2005 .

[22]  Alan D. Jagolinzer,et al.  Corporate Governance and the Information Content of Insider Trades , 2011 .

[23]  Marilyn F. Johnson,et al.  The Impact of Securities Litigation Reform on the Disclosure of Forward-Looking Information by High Technology Firms , 2001 .

[24]  Michelle Lowry,et al.  Does Disclosure Deter or Trigger Litigation? , 2005 .

[25]  Russell J. Lundholm,et al.  CROSS- SECTIONAL DETERMINANTS OF ANALYST RATINGS OF CORPORATE DISCLOSURES , 1993 .

[26]  W. Newey,et al.  A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix , 1986 .

[27]  J. Grundfest,et al.  Securities Litigation Reform: The First Year's Experience a Statistical and Legal Analysis of Class Action Securities Fraud Litigation Under the Private Securities Litigation Reform Act of 1995 , 1997 .

[28]  Maureen F. McNichols,et al.  Discretionary Disclosure and External Financing , 1995 .

[29]  Sanjeev Bhojraj,et al.  The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts , 2004 .

[30]  William Kross,et al.  The Effect of Regulation FD on the Properties of Management Earnings Forecasts , 2012 .

[31]  D. Rubin,et al.  The central role of the propensity score in observational studies for causal effects , 1983 .

[32]  Baruch Lev,et al.  To warn or not to warn: Management disclosures in the face of an earnings surprise , 1995 .

[33]  S Finkelstein,et al.  Power in top management teams: dimensions, measurement, and validation. , 1992, Academy of Management journal. Academy of Management.

[34]  W. Newey,et al.  A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix , 1986 .

[35]  A. Shleifer,et al.  A Survey of Corporate Governance , 1996 .

[36]  Robert E. Verrecchia,et al.  Disclosure, Liquidity, and the Cost of Capital , 1991 .

[37]  N. Vafeas,et al.  The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis , 2005 .

[38]  Stephen M. Bainbridge,et al.  Managerialism, Legal Ethics, and Sarbanes-Oxley Section 307 , 2003 .

[39]  Douglas J. Skinner.  Earnings Disclosures and Stockholder Lawsuits , 1995 .

[40]  Gregory B. Waymire.  Earnings Volatility And Voluntary Management Forecast Disclosure , 1985 .

[41]  William Kross,et al.  Does Regulation FD Work? Evidence from Analysts’ Reliance on Public Disclosure , 2011 .

[42]  Venky Nagar,et al.  Discretionary Disclosure and Stock-based Incentives , 2003 .

[43]  John M. Hassell,et al.  The Effect of Legal Environment on Voluntary Disclosure: Evidence from Management Earnings Forecasts Issued in U.S. and Canadian Markets , 2002 .

[44]  Inho Suk,et al.  Consistency in Meeting or Beating Earnings Expectations and Management Earnings Forecasts , 2011 .

[45]  Christine Botosan.  Disclosure level and the cost of equity capital , 1997 .

[46]  Brett Trueman,et al.  Why do managers voluntarily release earnings forecasts , 1986 .

[47]  Charles W. Lamden.  The Securities and Exchange Commission , 1978 .

[48]  E. Fama,et al.  Risk, Return, and Equilibrium: Empirical Tests , 1973, Journal of Political Economy.

[49]  Douglas J. Skinner.  Earnings Disclosures and Stockholder Lawsuits , 1997 .

[50]  Linda Smith Bamber,et al.  Discretionary management earnings forecast disclosures: Antecedents and outcomes associated with forecast venue and forecast specificity choices , 1998 .