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