Learning While Working: How Do Early Litigation Experiences Affect Managers’ Disclosure?

We track the employment histories of over 6,000 chief executive officers (CEOs) and study how their past litigation experiences affect voluntary disclosure of management forecasts. We define litigation experience to be any securities class action experienced during a CEO’s early career in non-CEO positions and in other firms. We find that CEOs with litigation experience (“litigation CEOs”) provide more management forecasts. The positive effects are further identified using a matched sample design. We also find that litigation CEOs provide more timely forecasts, are more likely to provide range forecasts, and market reactions to their forecasts are stronger. Collectively, the evidence indicates that early career litigation exposure leads CEOs to improve both the quantity and quality of their voluntary disclosures.