Publication Type

Working Paper

Publication Date

6-2018

Abstract

Using a landmark Supreme Court decision as a natural experiment, I examine the impact of a fundamental requirement in securities litigation, the ex post loss rule, on income-decreasing accounting choices. Dura Pharmaceuticals v. Broudo (2005) established that plaintiffs must show that the alleged misrepresentations caused an actual economic loss. The case resolved a circuit split, allowing me to identify a treatment jurisdiction affected by Dura, and control jurisdictions in which the rule was already the prevailing legal standard. Motivated by legal analyses suggesting that Dura incentivizes firms to delay negative corrections, I hypothesize and find that treatment firms in high-litigation industries became more likely to delay write-downs and income-decreasing accrual error reversals at the firm level after Dura, relative to matched control firms. This paper sheds light on the relationship between securities law and accounting practices, and informs policy makers on the accounting impact of a key feature of the legal environment.

Keywords

Write-downs, Accruals, Supreme Court, Securities Litigation

Discipline

Accounting | Accounting Law

Research Areas

Corporate Reporting and Disclosure

First Page

1

Last Page

68

Identifier

10.2139/ssrn.2857703

Publisher

SSRN

Additional URL

https://dx.doi.org/10.2139/ssrn.2857703

Download

Share

COinS