We examine the effect of litigation risk on management's decision to issue earnings forecasts. We use a new ex ante measure of litigation risk, namely, the Directors and Officers liability insurance premium. This measure bypasses significant problems associated with the estimation of ex ante...

Using D&O insurance premia from the 2001-2004 Tillinghast D&O insurance surveys as a proxy for litigation risk, we show that audit fees are positively associated with litigation risk even after controlling for several quantitative risk factors known to influence both the insurance premium and...

Litigation poses a significant business risk for auditors. We argue that auditors learn from other auditors' litigation events and examine the consequences of such events for future accounting misstatements. Using a hand-collected sample of auditor litigation events, we find a significant...

Litigation poses a significant business risk for auditors. We argue that litigation events involving other auditors' deter audit firms from providing low quality audits. We find a significant subsequent decrease in the misstatement frequency of financial reports in within-industry audits...

Several theoretical studies provide predictions on the relation between settlement likelihood and litigation stakes. Although models with generalizable settings argue in favor of a negative relation, certain specialized settings predict the opposite. In contrast to the theoretical literature,...