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Managerial Disclosures and Shareholder Litigation

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  • Brett Trueman

    (University of California, Berkeley)

Abstract

This paper explores the link between shareholder lawsuits brought under Rule 10b-5 of the Securities Exchange Act of 1934 and managerial disclosures of prospective information. When the manager's information is such that there is no affirmative duty to disclose under Rule 10b-5, previous research has shown that the manager will withhold his information if it is sufficiently unfavorable and will disclose it otherwise. When the manager's information is such that there exists an affirmative duty to disclose under Rule 10b-5, it is shown here that the manager will release either good news or news that is sufficiently bad. Further, the good news disclosures are expected to be more precise than those that reflect unfavorable information. It is also demonstrated that the probability of a disclosure will increase with both the precision of the manager's information and the variability of his firm's earnings.

Suggested Citation

  • Brett Trueman, 1997. "Managerial Disclosures and Shareholder Litigation," Review of Accounting Studies, Springer, vol. 2(2), pages 181-199, June.
    • Handle: RePEc:spr:reaccs:v:2:y:1997:i:2:d:10.1023_a:1018303309137
    DOI: 10.1023/A:1018303309137
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    References listed on IDEAS

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    1. Trueman, Brett, 1986. "Why do managers voluntarily release earnings forecasts?," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 53-71, March.
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    Cited by:

    1. Sunil Dutta & Brett Trueman, 2002. "The Interpretation of Information and Corporate Disclosure Strategies," Review of Accounting Studies, Springer, vol. 7(1), pages 75-96, March.
    2. Ewa Sletten, 2012. "The effect of stock price on discretionary disclosure," Review of Accounting Studies, Springer, vol. 17(1), pages 96-133, March.

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