International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Do Firms adopt more Conservative Reporting in the Wake of Litigation?
Ping KE

I use a performance-matched sample from 1996 to 2011 to test if firms adopt more conservative reporting after being sued under the Rule 10(b)-5. Using Basu’s measure as proxy for conservatism, I find that the firms that get sued are less conservative than the matched firms before litigation. In the post-litigation period, the lawsuit firms exhibit significant change in their reporting behavior by recognizing losses in a significantly timelier manner as compared to recognizing gains. However, result also suggests that the sued firms are still less conservative than the matched firms in the post-litigation period.

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