The Impact of Litigation Risk on the Strategic Timing of Management Earnings Forecasts

This paper examines whether managers strategically time their earnings forecasts (MEFs) as litigation risk increases. We find as litigation risk increases, the propensity to release a delayed forecast until after the market is closed (AMC) or a Friday decreases but not proportionally more for bad news than for good news. How costly this behaviour is to investors is questionable as share price returns do not reveal any under-reaction a strategically timed bad news MEF released AMC. We also find evidence consistent with managers timing their MEFs during a natural no-trading period to better disseminate information