The paper provides evidence that the threat of litigation influences managers' accounting and insider trading choices in firms experiencing deteriorating financial performance. We analyze the two-year period preceding technical default for 462 firms during 1983-1997. Our sample firms have...

This paper evaluates two hypotheses about the relation between insider selling and earnings management in periods preceding poor corporate performance. Consistent with our litigation avoidance hypothesis, we provide evidence that managers manage earnings upwards after they have engaged in...

The paper provides evidence that the signal contained in insiders' trading behavior is useful in making refined assessments of earnings quality, and informative about the valuation implications of accruals. We find that income-increasing accruals and unexpected accruals have lower (higher)...

We use a sample of firms that experience technical default to investigate whether an observable managerial action, managers? trading, is useful in (1) determining the existence of pre-default earnings management, and (2) in assessing whether specific contract modifications in renegotiated debt...