00:00:05
so my research focuses on the
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interaction among firm disclosure
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Behavior insider trading and litigation
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outcomes and I examine what are the kind
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of settings that lead managers to uh
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provide forecasts with their quarterly
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earnings release or whether they decide
00:00:22
to withhold those forecasts and whether
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incentives play a role such as inator
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trading or whether the desire to uh
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reduce the likelihood of L ation uh
00:00:31
plays a role on that so what are the
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determinants of whether uh management
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decides to go above and beyond providing
00:00:38
the normal required accounting
00:00:39
disclosures every quarter and in
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addition provide uh more qualitative or
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more uh uh subjective forecasts of the
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company's future
00:00:52
prospects so in a recent study of mine
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my co-author and I examined a sample of
00:00:56
firms which announced disappointing
00:00:58
quarterly earnings and whether or not uh
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firm managers gave any warning about it
00:01:03
prior to the announcement and we find
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that when company managers sell more of
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their own shares in The Firm after the
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prior quarters earnings announcement
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they're much less likely to warn about
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the current quarters uh earnings
00:01:18
disappointment so as not to dampen the
00:01:20
share price when they sell we call this
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Behavior strategic silence and what's
00:01:25
more interesting is when we bring
00:01:26
litigation into the story we find that
00:01:29
the likelihood the firm will get sued
00:01:30
after the earnings disappointment is
00:01:32
related to both strategic silence and
00:01:35
Insider selling and that there's an
00:01:37
interactive effect between the two
00:01:39
meaning that silence and selling enhance
00:01:41
the effect of each other in predicting
00:01:47
litigation so the main takeaway for
00:01:49
managers who are aware of an upcoming
00:01:51
earnings disappointment is that warning
00:01:54
ahead of time can save a lot of
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headaches down the road in terms of
00:01:57
litigation and especially so if they're
00:02:00
planning to uh divest or sell off some
00:02:02
of their own Holdings in The Firm after
00:02:04
the earnings announcement uh because
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this is a key behavior that potential
00:02:08
plaintiffs look for when deciding
00:02:10
whether or not to initiate class action
00:02:12
litigation against the
00:02:17
firm so we're now looking at what
00:02:19
happens to the firm's disclosure and
00:02:21
trading Behavior after the firm gets
00:02:23
sued we know from our prior study that
00:02:26
silence and Insider selling both affect
00:02:29
the like hood of the firm getting sued
00:02:32
but what happens to that behavior after
00:02:34
the lawsuit does the lawsuit uh
00:02:36
instigate changes and whether or not
00:02:38
managers are much more likely to warn of
00:02:40
an earning short shortfall after they
00:02:42
get sued and also are firms uh much more
00:02:46
likely to have their managers engaging
00:02:48
in selling uh prior to an earning
00:02:50
shortfall does a lawsuit actually
00:02:52
instigate changes and behavior in these
00:02:55
dimensions
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[Music]
