Findings from a newly published study show that after class-action litigation companies are less likely to disclose information in sharp contradiction to legislation intended to have the opposite effect.
The study done by Jonathan Rogers and Andrew Van Buskirk at the University of Chicago examined the post-litigation behavior of 827 firms involved in class-action securities and litigation cases filed between 1996 and 2005.
The study found no evidence that firms in their sample displayed any increase or improvement in their disclosures to investors. In fact, post-litigation behavior warranted a decrease in practices such as conference calls or earnings forecasts. Higher levels of voluntary disclosure were not believed to reduce the expected cost of litigation.
This behavior contradicts the intent of the Private Securities Litigation Reform Act of 1995. The act was intended to increase corporate transparency, however the perceived consequences have led firms to take a more shielded approach.
If a post-litigation conference call or forecast is issued, the reports became less specific. The decrease in information availability in no way inferred that the company was less capable of providing such information, but rather, that it conscientiously limited available information to prevent being held accountable later on.