When are Firms Sued for Qualitative Disclosures? Implications of the Safe Harbor for Forward-Looking Statements

Prior research finds that firms' qualitative disclosures subject firms to shareholder lawsuits. However, federal securities laws provide a safe harbor intended to shield firms' forward-looking statements from legal liability. One implication of this safe harbor is that litigation risk potentially varies between qualitative forward and non-forward-looking statements. Consistent with this implication, we find that forward-looking qualitative statements are significantly less related to the likelihood of subsequent litigation than are non-forward-looking qualitative statements. On average, we fail to find a significant association between qualitative forward-looking statements and subsequent litigation. We do find evidence, however, that qualitative forward-looking statements relate positively to subsequent litigation in two U.S. circuits after court rulings in those circuits reduced safe harbor protections for forward-looking statements. Overall, our results are consistent with the safe harbor effectively shielding firms' qualitative forward-looking statements from litigation risk