Peers also adjust attributes of mandatory disclosures: disclosures become shorter, more readable, and contain fewer litigation-related terms. Further, disclosure results are concentrated in growth firms, where voluntary disclosure is most important, and in low litigation industries, where litigation is more noteworthy. Notably, investors and peers respond primarily to cases that eventually settle, where litigation costs are concentrated. Additionally, peers provide more voluntary earnings and sales forecasts. We find investors respond immediately as peers exhibit negative abnormal returns before and after case filings. We extend this research by examining the spillover effect of securities litigation on industry peers using a sample of disclosure-related litigation-distinct from events such as restatements and SEC enforcement. Securities litigation is relatively rare but can significantly affect sued firms.
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