Does litigation deter or encourage real earnings management

• Main Authors: HUANG, Sterling, ROYCHOWDHURY, Sugata, SLETTEN, Ewa
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Real Earnings Management; Earnings Management; Deterrence; Litigation; Corporate Governance; Misleading Disclosure; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1832; https://ink.library.smu.edu.sg/context/soa_research/article/2859/viewcontent/Does_Litigation_Encourage_REM_2019_av.pdf
• Institution: Singapore Management University

In this paper, we rely on an exogenous shock to examine the impact of litigation risk on real earnings management (REM). We conduct differences-in-differences tests centered on an unanticipated court ruling that reduced litigation risk for firms headquartered in the Ninth Circuit. REM increases sign...