Donelson & Hopkins on Disclosure

Dain C. Donelson and Justin Hopkins have posted Disclosing Adverse Earnings News and Litigation: The Importance of Large Market Declines on SSRN with the following abstract: 

This study examines the legal consequences of disclosing adverse news after hours or disclosing during large market declines. The probability of litigation rises to 0.28% (from 0.16%), and settlements increase 50% over the median (by $1.7 million) when disclosure occurs during a large market decline. Disclosures issued after hours are also more likely to trigger litigation (0.36% versus 0.17%), but this is because managers disclose more adverse news during this period. In supplemental tests, we find no evidence that the timing of firm disclosures affects dismissals, or that managers delay disclosures to avoid days with large market declines. The latter result could be attributable to managers not recognizing the legal consequences to disclosing adverse news on a day where the market declines significantly because legal standards suggest that broader market forces should have no bearing on the outcome of securities litigation.