Do the SEC's Safe Harbor Provisions Encourage Forward-Looking Disclosures?

Abstract

Recent surveys indicate that CEOs are reluctant to make disclosures of forward-looking information because they believe these disclosures expose them and their firms to stockholder litigation. Partly as a result of these claims, the SEC has recently called for testimony on whether the current safe harbor provisions are effective in encouraging corporate managers to disclose voluntarily forward-looking information. Evidence from the voluntary disclosure literature suggests that legal liability concerns have important effects on managers' voluntary disclosure choices and that these concerns often prevent managers from issuing earnings forecasts. By strengthening the safe harbor provisions to reduce the expected legal costs of disclosure, the SEC can increase the extent to which managers voluntarily disclose forward-looking information.