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Pier                                                                                                                                                                                Advances in Business Research 

2011, Vol. 2, No. 1, 138-148 

138 

 

The Effect of Securities Litigation Reform and regulation Fair Disclosure on Forward-

Looking Disclosures 
 

Chuck Pier, Angelo State University 
 

 

In the late 1990s, both Congress and the Securities and Exchange Committee (SEC) sought to encourage 
more forward-looking disclosures. This led to three specific items of legislation/regulation: the Private 

Securities Litigation Reform Act of 1995 (PSLRA), the Securities Litigation Uniform Standards Act of 
1998 (SLUSA), and Regulation Fair Disclosure (Reg.-FD) (2000). Although the specific purposes of each 
of these Acts were different, they each were founded on the desire of Congress and the Securities and 

Exchange Commission to improve the flow of information, particularly information about future 
operations from firms to investors. This paper looks at the effectiveness of these three Acts in increasing 

the number of forward-looking disclosures provided by companies in three disparate industries. Using a 
sample of 150 firms in the Consumer Staples, Consumer Durables, and Software industries, it was found 
that the number of forward-looking disclosures significantly increased following the passages of the 

SLUSA, and Reg.-FD, but not after the passage of the PSLRA. 
 

 

The Securities and Exchange Commission (SEC) has two underlying purposes for disclosure 

requirements: access to information to aid in decision-making and the prevention of fraudulent reporting 

(Skousen, 1991). In addition, the SEC has expressed a desire for fairness in reporting for many years. 

Bentson (1973, p. 134) noted that “Perhaps even more important is the concept of ‘fairness’, the belief 

that all investors, large and small, insiders and outsiders, should have equal access to relevant 

information.” 

Before being able to make decisions about firms, investors must first have access to information 

regarding those firms. Although historical financial data are abundant, prospective or “forward-looking” 

data have been much less available to the investing public. Numerous studies Baker and Haslem (1973), 

Chandra (1975), Frazier and Ingram (1983), Frazier, et al. (1984), Hawkins and Hawkins (1986), Hoskin, 

et al. (1986), Epstein and Pava (1994), The Jenkins Report (AICPA, 1994), Epstein and Pava (1995), 

Bryan (1997), and Barron, et al., (1999) among others] have found that accountants, investors, 

academicians, and other interested parties consider forward-looking disclosures of financial and other 

corporate information relevant to decision making. 

At several points over the past two decades, the SEC and Congress have attempted to increase the 

number of forward-looking disclosures provided by public companies. Two Congressional Acts and one 

SEC regulation have been implemented with at least an indirect impact on the issuance of forward-

looking disclosures: (1) the Private Securities Litigation Reform Act of 1995 (PSLRA), (2) the Securities 

Litigation Uniform Securities Act of 1998 (SLUSA), and (3) Regulation Fair Disclosure (Reg. FD). 

While it may be argued that the specific intent of each of these actions was not to increase the quantity of 

forward-looking disclosures, it was always considered to be an important indirect outcome from the 

regulations. In 1996, then-SEC Chairman Arthur Levitt declared, in a speech regarding his thoughts on 

the PSLRA (Levitt 1996) that, “Most of the interaction between the SEC and Capitol Hill centered on the 

bill’s safe harbor provisions. Our goal was to encourage companies to provide more meaningful forward-

looking information to the market by affording them greater protection” (emphasis added). 
 

LITERATURE REVIEW 
 

Corporate disclosure is necessary for the efficient functioning of capital markets and there is a rich 

history of research in required financial disclosures. However, there has been little research on voluntary 

corporate disclosures (Healy and Palepu 2001). Such disclosures can be provided through regulated 

financial reports (including the financial statements, footnotes, management discussion and analysis, and 

other regulatory filings). In addition many firms will voluntarily disclose information such as 



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management forecasts as well as sales and earnings results in conference calls, press releases, internet 

sites and other, non-regulated reports. 

Disclosure studies assume, that even in efficient markets, managers possess superior information on 

their firms’ expected future performance when compared to the knowledge of outside investors and 

analysts (Healy and Palepu 2001). However, some studies have shown that it is in a firm’s best interest to 

disclose more as opposed to less. For example, Milgrom (1981) found that, assuming both credible 

disclosures and no cost to disclose, full disclosure will occur because investors will assume that firms not 

making voluntarily disclosures have the worst possible circumstances. Lang and Lundholm (1993) found 

that the more information a firm voluntarily discloses the higher the return on that firm’s stock. In 

addition to the increase in stock performance, Healy, et al., (1999) found that firms that increased their 

disclosure levels experienced increases in institutional ownership, the number of analysts following the 

stock and stock liquidity. 

The history of forward-looking statements is fairly short. Prior to 1972, so-called “soft” forward-

looking information was prohibited in SEC-filed documents because such information was believed to be 

inherently unreliable and unpredictable (Kerr, 1987). However, in 1979, the SEC reversed its position 

with the enactment of Rule 175 (Hiler, 1987). Rule 175 provided that forward-looking statements would 

not be deemed fraudulent if they were made in “good-faith” and if they had a “reasonable basis” of 

assumptions (Calderon and Kowal, 1997). This introduction of a “safe harbor” for forward-looking 

disclosures was severely limited. The main drawback to Rule 175 was its application only to written 

forward-looking statements filed with the SEC or oral statements that reaffirmed in writing with the SEC. 

In other words, oral statements by themselves were not provided any safe harbor protection. Both Skinner 

(1995) and Pownall et al., (1993) found that despite the SEC’s encouragement, forward-looking 

disclosures were rare due to potential stockholder litigation. 

The first mention in SEC literature of a required forward-looking disclosure occurred in 1980 (SAR 

No. 33-6231). This release required a more comprehensive discussion of the financial statements as a 

whole with particular regard to liquidity, capital resources, and results of operations, as well as a 

discussion of forward-looking disclosures in the same three areas. This change in emphasis brought about 

the new reporting section entitled Management’s Discussion and Analysis (MD&A).  

There was substantial criticism of the new requirement due to the lack of guidance on the form of the 

MD&A section. To address these concerns and provide guidance, the SEC issued Financial Reporting 

Release No. 36 (FRR-36) in 1989. FRR-36 sought to address inadequacies in prior disclosures in the 

MD&A section. Of particular interest to this paper was the inclusion of guidance on the use of the safe 

harbor provisions provided by Rule 175 to encourage more complete forward-looking information with a 

lower level of legal liability.  

Studies by Hooks and Moon (1993) and Eikner (1994) found that the implementation of FRR-36 led to 

a very small increase in the number of forward-looking disclosures. A1994 survey of the Manufacturers 

Alliance (a group of 500 manufacturing companies) indicated that only 17% of its members made any 

type of forward-looking disclosures. Of the 83% not making forward-looking disclosures, nearly half 

(49%) said that additional protection from legal liability would encourage them to make forward-looking 

disclosures (Barlas, 1995). Frost (1998) found that the number of firms making forward-looking 

disclosures in the United States was significantly less than in countries where legal actions for misleading 

statements are infrequent.  

The Private Securities Litigation Reform Act (PSLRA) was enacted in response to claims of 

widespread abuse in the area of securities litigation (Conference Report, 1995; Avery 1996). The Act’s 

proponents alleged that federal securities laws promoted the filing of “strike” suits based solely on a 

decline in stock price. These same proponents expressed concern that frivolous suits were severely 

limiting managers’ communication of forward-looking information to the marketplace (Johnson, et al., 

2001). The proponents argued that shareholders would benefit from the passage of the PSLRA through 

decreased litigation costs associated with frivolous litigation. Coffee (1985) found that frivolous litigation 

significantly increased costs to companies involved with all forms of litigation. It was also thought that 

the PSLRA’s safe harbor and the increased difficulty in filing suit might encourage firms to adopt a more 



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forthcoming disclosure policy which would yield a lower cost of capital (Botosan, 1997) and more 

interest by investors (Lang and Lundholm, 1996).  

These arguments were countered by PSLRA opponents who argued that the safe harbor would 

increase the risk of firms disclosing less accurate information. Additionally, although there may be 

increased disclosures, the ability to create cautionary statements to accompany the new disclosures would 

be more important than the actual information disclosed (Spiess and Tkac, 1997). 

On December 22, 1995, after being vetoed by President Clinton, both the House and the Senate 

overrode the President’s veto and the PSLRA became effective on January 1, 1996 (PL 104-67). 

The PSLRA defines the term “forward-looking statement” as a projection of revenues, income, or 

other financial items; a statement of management’s plans and objectives for future operations (including 

products or services); a statement of future economic performance; and a statement of assumptions 

underlying these projections (PSLRA, Sec. 13A (b) of U.S. Public Law 67, 104th Congress). The basic 

framework of the safe harbor provided in the PSLRA is quite simple. The PSLRA safe harbor has two 

tests that operate in an ‘or’ fashion. If either test is met, the person or issuer making the statement is 

protected from private liability (cases filed in civil courts as opposed to criminal cases), but not 

necessarily from the SEC. In other words, a statement that meets one of the two prongs cannot be sued by 

investors but can still be subject to SEC action. 

The first test is one of “actual knowledge” (Avery, 1996). Under this test, the person or issuer is 

protected with respect to the forward-looking statement if the plaintiff fails to prove that the statement 

was made with actual knowledge that the statement was false or misleading. The “actual knowledge” test 

does not need to be accompanied by any cautionary language. (U.S. Public Law 67, 104th Congress). 

The second test is known as the “bespeaks caution” test. (Avery, 1996) Under this test the person or 

issuer making the statement is protected if the statement is identified as a forward-looking statement and 

is accompanied by meaningful cautionary statements that identify important factors that could cause 

actual results to differ materially from those in the forward-looking statement (Boyle and Knopf, 1996). 

This test has two interesting aspects. First, the test protects statements that are immaterial. Second, and 

perhaps more interesting, is the fact that, if read literally, the “bespeaks caution” test would protect 

knowingly false statements as long as they were accompanied by meaningful cautionary statements. 

Specifically, the Statement of the Managers in the Conference Report that approved the final version of 

the PSLRA specifically instructed the courts to examine only the cautionary statement accompanying the 

forward-looking statement and “not examine the state of mind” of the issuer making the statement 

(Congressional Record H13703, 1995). Numerous critics of the PSLRA cited this as a, “license to lie.” 

There are two citations that attribute the phrase, “license to lie” (with regard to the PSLRA) to specific 

individuals. Janis (1996) attributes the phrase to consumer activist Ralph Nader. Carney (2002) and 

Spector (2002) attribute the remark to then Sen. Joseph Biden during the debate to override the 

Presidential veto of the PSLRA. 

Despite the significance of the PSLRA on corporate financial reporting, and particularly on forward-

looking disclosures, there has been limited research on it. Grundfest and Perino (1997) were among the 

first to look at the effects of the passage of the PSLRA. They found that in the year following the 

PSLRA’s passage there was a drop in the number of lawsuits filed, but not the numbers expected. Despite 

the fact that the overall litigation rate was relatively unchanged after the passage of the PSLRA, 

Grundfest and Perino (1997) found that there was a significant drop in the number of complaints alleging 

false forward-looking disclosures as the basis for filing a lawsuit. Although this decline was welcome 

news and seemed to satisfy the intentions of Congress, the same report noted that an almost equal increase 

in filings was noted in state courts. Grundfest and Perino (1997) attributed this increase in state court 

filings to a “substitution effect” where plaintiffs chose to file in state courts to avoid the more stringent 

requirements of the new law in federal courts. 

The SEC, in its report to the President and Congress on the first year of practice after passage of the 

PSLRA, noted that the “quality and quantity of forward-looking disclosures has not significantly 

improved following enactment of the safe harbor for forward-looking statements” (SEC 1997). However, 

the SEC performed no empirical tests and based its statements on anecdotal evidence only. Additionally 



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the SEC called the shift of securities fraud cases from federal to state courts “the most significant 

development in securities litigation” since the passage of the PSLRA (SEC 1997). The report also noted 

that the increases in state court filings were almost wholly attributable to the passage of the PSLRA, given 

that there was essentially no significant securities litigation in state courts prior to the passage of the 

PSLRA. 

In late 1997, legislation was introduced in Congress to address the issue of plaintiffs attempting to 

circumvent the PSLRA by filing in state courts. The Securities Litigation Uniform Standards Act 

(SLUSA) was designed to make federal court the exclusive venue for most securities suits, preventing 

plaintiffs from seeking to evade the provisions of the PSLRA. The SLUSA also enables defendants to 

force all actions arising out of the same set of facts into one court, thereby avoiding the common problem 

of being forced to litigate in several state and federal courts simultaneously (Hamilton and Trautmann, 

1998).  

Studies completed since the passage of the SLUSA (Day 1999, Rosen 1999) have found that the 

number of lawsuits filed decreased only minimally. However, it should be noted that these studies dealt 

with only the number of filings. Although quantity of lawsuits is an important piece of information it is 

not totally reflective of actions; many cases that are filed never make it to the courtroom because they are 

dismissed on procedural or other grounds, such as being frivolous. No studies were found that 

investigated the actual number of cases filed versus the number that actually make it to trial. However 

Cashin (1999) cites anecdotal evidence that both the PSLRA and SLUSA have been successful in 

reducing the number of cases actually going to trial. 

Of particular interest to this study was the finding by Rosen (1999) that, based on a quantitative 

analysis of cases, the PSLRA’s safe harbor provision was deterring the filing of cases in which a 

securities issuer made a projection and met the PSLRA requirements. Rosen noted that relatively few pure 

projection cases were being filed. 

Although both the PSLRA and SLUSA had the potential to increase the number of forward-looking 

disclosures, SEC Regulation-FD (Reg FD) may actually lead to the largest increase. This regulation was 

designed to promote the full and fair disclosure of information by issuers (SEC Regulation FD, 2000). 

Former SEC Chairman Arthur Levitt pushed for this rule that would prohibit the selective disclosure of 

material nonpublic information in an effort to level the playing field. The SEC believed that selective 

disclosure created a loss in investor confidence in the integrity of the capital markets (Hamilton and 

Trautmann, 2000). 

Numerous criticisms have been made against Reg. FD, but the most common concern was that the 

regulation would have the effect of ‘chilling corporate disclosure’ (Hamilton and Trautmann, 2000; 

Hassett, 2000; and Anonymous, 2000). These critics felt that rather than risk sanctions from the SEC 

regarding selective disclosures, many companies would simply discontinue all disclosures. 

An article in The CPA Journal (Anonymous 2001) described two surveys that expressed opposite 

opinions on the initial results of Reg FD. The first survey, conducted by the Association for Investment 

Management and Research (AIMR) found that analysts believed (emphasis added) that Reg FD had 

reduced the amount of information provided by companies. This survey also noted that information 

regarding forecasts was particularly less available after implementation. Also, a PricewaterhouseCoopers 

survey of top corporate executives believed (emphasis added) that Reg FD had favorably affected 

company disclosures in quantity, quality, and frequency. 

Implementation of Reg FD has produced a significant quantity of research in the area of information 

dissemination. These studies have found that Reg FD has reduced selective disclosures without impairing 

the flow of information to investors (Straser, 2002; Sunder, 2002; Zitzewitz, 2002; Aslan, 2003; Bailey et 

al., 2003; and Heflin et al., 2003). 
 

Research Questions and Methodology 
 

This paper seeks to determine whether the passage of the PSLRA, the SLUSA and Reg FD lead to an 

increase in the number of forward-looking disclosures. Since this research relates to the passage of three 



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pieces of legislation/regulations, the effects of these regulations were measured both pre- and post-

implementation of each piece of legislation/regulation. (See Figure 1 on next page for study time line). 

The operational hypothesis, stated in the alternate form, is: 
 

H: The mean number of forward-looking disclosures is different between at least two of the periods 

under study. In notational form, this hypothesis is expressed as:  !"#"$"%"$"&"$"'(")*+,+! 
 

A = the mean number of forward-looking disclosures prior to passage of the PSLRA (data from the 

second quarters of 1993, 1994, and 1995). 

B = the mean number of forward-looking disclosures after passage of the PSLRA (data from the 

second quarter of 1996).  

C = the mean number of forward-looking disclosures after passage of the SLUSA (data from the 

second quarter of 1999). 

D = the mean number of forward-looking disclosures after implementation of Reg. FD (data from the 

second quarter of 2001). 
 

Statistical Tests 
 

The effects of passage of the PSLRA and SLUSA as well as the implementation of Reg. FD are 

measured by the use of a single-factor, within-subjects ANOVA. If the overall ANOVA is significant, the 

inference can be made that there was a change in the number of forward-looking disclosures after the 

implementation of the legislation/regulations. 

When the ANOVA F ratio is significant and more than two sample means are involved, multiple 

comparison procedures must be used to determine which means are significantly different from the other 

means. Because this study is interested in all possible pairwise comparisons, the most appropriate test is 

the Tukey HSD (Sheskin, 2000). 
 

Sample Size 
 

A sample size of 150 companies in total, with 50 from each industry subset was selected for this study. 

The following requirements were placed on the firms in this study: 
 

1. Firms must be included in the Standard & Poor’s Research Insight (formerly known as CompuStat) 

database. 

2. Firms must have a Global Industry Classification Standard (GICS) of 2520 (Consumer Durables); 

3010, 3020, and 3030 (Consumer Staples); and 4510 (Software). 

3. Firms must be reporting in the second quarter of the periods under study. 

4. Firms must end their fiscal year on December 31. 
 

The GICS included in this study were chosen to provide a diverse group of sectors. GICS 2520 

(Consumer durables) were chosen to represent a cyclical sector; GICS’s 3010, 3020, and 3030 (Consumer 

staples) were chosen to represent a defensive sector; and GICS 4510 (Software) were chosen to represent 

a high growth sector.  

Each piece of legislation/regulation (PSLRA, SLUSA, and Reg.-FD) was enacted in the fourth quarter 

of the calendar year. Since some of the legislation was passed very late in the fourth quarter (the PSLRA 

was passed on December 22nd), it may not have been implemented at the beginning of the first calendar 

quarter. Therefore the second calendar quarter was chosen as the period to analyze the number of 

forward-looking disclosures.  

In addition to these periods for post-implementation data gathering, a baseline had to be established. 

The pre-implementation data were pulled from the second calendar quarter of 1995. To ensure that an 

anomaly in this quarter did not affect the study, it was decided that the baseline data should be the mean 

number of forward-looking disclosures of the second calendar quarter of the three years (1993, 1994, and 

1995) preceding the first act’s implementation. 



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Figure 1: Time line of study 
 

Note: All data collection occurs in the second calendar quarter of the year in question. 

Based on the criteria discussed above, all firms selected must be reporting in the second quarter of 

1993, 1994, 1995, 1996, 1999, and 2001.  
 

Results and Analysis 
 

The initial sample of firms was selected from Standard & Poor’s Research Insight database. A random 

sample of 50 firms from each GICS Industry classification that met the criteria listed above was then 

selected for study. The samples were randomized to allow for generalization of the results across the 

industry in each sample. (See Appendices A through C at the end of the paper for a complete list and size 

of companies in the each of the samples.) 

Lexis-Nexis Academic Universe’s (News) Wire Service Reports was searched for both the company 

name and ticker symbol of the selected firms. In addition to firm name, various keywords typically 

associated with forward-looking disclosures or forecasts were used. The specific search string used was, 

“expect! or predict! or forecast! or project! or anticipate! or estimate! or outlook or foresee! or believe.” 

The wildcard “!” allows for the return of any wire that contains the base form of the word depicted, 

therefore the search term “expect!” would return disclosures that contained the words “expect,” 

expectations,” “expected,” etc.. This string was based on the search string used in Johnson, et al., (2001).  

1993 2001 2000 1999 1998 1997 1996 1995 1994 

                    PSLRA: December 22, 1995                      SLUSA: November 3, 1998                        Regulation FD: October 23, 2000 

Baseline data collection 

period (A) 

Post-Reg. FD data 

collection period (D) 

Post-SLUSA data 

collection period (C) 

Post-PSLRA data 

collection period (B) 



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Since most firms simultaneously send out press releases to many wire services, the list of disclosures 

in the wire services generated numerous duplications. All redundant disclosures were eliminated. 

Examples of typical forward-looking disclosure are listed in Appendix D at the end of the paper and an 

example of a redundant disclosure is provided in Appendix E. The criteria above resulted in a total of 612 

unique (non-redundant) forward-looking disclosures identified for the sample firms. The breakdown by 

industry and time period is provided in Table 1. 
 

Table 1: Forward-Looking Disclosure Sample Distributions 
 

 Consumer Durables Industry Consumer Staples Industry Software Industry  

Year GICS 2520 GICS 3000 GICS 4510 Total 

1993 11 16 4 31 

1994 12 17 17 46 

1995 19 18 23 60 

1996 15 27 23 65 

1999 44 48 61 153 

2001 60 73 124 257 

Totals 161 199 252 612 
 

ANOVA Results 
 

The hypothesis posits that there is a statistical difference between the mean number of forward-

looking disclosures in each of the periods analyzed. Results of the ANOVA are shown in Table 2. 

Descriptive statistics are provided in Table 3. Overall, the ANOVA shows that there is a statistical 

difference between at least two of the data points measured, with an F value of 39.159, which generates a 

P-value of < 0.000. 
 

Table 2: ANOVA Results for Hypothesis (H) 
 

Source of Variation SS df MS F P-value F crit 

Between Groups 47.527 3 15.842 39.159 0.000 2.620 

Within Groups 241.125 596 0.405    

Total 288.652 599     

 

Table 3: Descriptive Statistics 
 

 N Mean Std. Dev. Min. Max. 

Average of Square Root of Baseline Data 150 .3446 .43238 .00 1.63 

Square Root of 1996 Data 150 .3797 .53957 .00 2.00 

Square Root of 1999 Data  150 .7292 .70108 .00 2.45 

Square Root of 2001 Data 150 1.0339 .80542 .00 3.46 

 

Table 4: Test of Multiple Comparisons Analysis 
 

Paired Differences of Forward-Looking Disclosures Calculated q 

Baseline to 1996 -1.28065 

Baseline to 1999 -7.1098*** 

Baseline to 2001 -13.9988*** 

1996 to 1999 -5.82915*** 

1996 to 2001 -12.7182*** 

1999 to 2001 -6.889*** 

   !"#$"%"&'$()'()*)+),-,. 
 

Multiple Comparison Results 
 

Although the ANOVA provides proof that there is a significant difference in the means of the four 

periods under study, it does not provide the necessary information to know which of the means differed 

significantly. To determine this, each pair of time periods under study were compared, producing six 

different test statistics (q). The results from these multiple comparisons are listed in Table 4. The absolute 

value of a calculated q must be equal to or greater than 3.63 for significance at the .05 level and greater 

than or equal to 4.40 for significance at the .01 level. Table 4 shows that the only pair of sample means 



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that failed to show significance was from the period just prior to the implementation of the PSLRA 

(Baseline data from 1993, 1994 and 1995) and the first data collected after the implementation of the 

PSLRA (1996). 
 

Analysis 
 

The results of the statistical tests showed that there was a significant difference in the mean number of 

forward-looking disclosures during the periods under study. In addition, multiple comparisons were 

conducted to determine which periods differed significantly from other periods. These results showed 

significance at < 0.01 for five out of the six comparisons. The only pair of samples that failed to show 

significance was the sample immediately prior to the passage of the PSLRA and the sample immediately 

after passage of the PSLRA. 

These results would support Grundfest and Perino (1997), Hamilton and Trautmann (1998), and the 

SEC (in its 1997 report on the first year of practice under the PSLRA) that the passage of the PSLRA did 

not alter the total securities litigation landscape. Instead the PSLRA just served to shift litigation from 

federal courts to the state courts. This shifting, as opposed to a reduction in the threat of litigation could 

explain why firms failed to issue more forward-looking disclosures following the passage of the PSLRA. 

Once this bypassing of the PSLRA through state courts was removed by passage of the SLUSA a 

significant increase in the mean number of forward-looking disclosures was noted. Another significant 

increase in forward-looking disclosures was found after implementation of Reg.-FD. 
 

Limitations of the Current Study 
 

This study has three primary limitations. First, because only three industries were sampled, no 

generalization can be made to firms in all industries. Although care was taken to ensure that a random and 

complete sample in each industry was obtained, many firms in other industries were not analyzed.  

Second, the possibility of confounding events within the time periods under study was not addressed. 

Use of three different industries and a fairly large sample from each industry would help to mitigate 

individually occurring confounding events, but systemic events that would affect either all companies in 

the study or all of the companies within a particular industry however were not addressed. 

Finally, inferences that can be made from the current study are also limited because of the use of 

archival data. The use of archival data means there is inability to manipulate or control variables. Any 

significance attributed to certain aspects under study may be due to a simple association, as opposed to a 

causality relationship between the variables. 
 

Conclusions and Future Research 
 

As this study has shown, an increase in forward-looking disclosures was brought about by the passage 

of laws and regulations. However, despite the increases in forward-looking disclosures over prior periods, 

the level of disclosures desired by Congress, the SEC, and the investing public has yet to materialize. 

While empirical evidence has shown a reduction in cost of capital for firms that voluntarily disclose 

forward-looking information, anecdotal evidence and the feelings of executives regarding a fear of 

litigation has overridden the benefits of this reduction in capital costs. Laws and regulations mandating 

more disclosures or further reducing litigation risks could be passed, and have the potential to provide 

stakeholders with beneficial information, but the prospects for these types of intervention appear limited 

for the foreseeable future.  

As noted above, there are several limitations to the current study. As with most limitations, these areas 

provide for future research projects. Since this study looked only at the immediate impact of the 

legislation, a more detailed long-range study to see the impact on future disclosures would be of interest. 

In addition, a more detailed study that looked at each company within a sector could look to see if there 

are characteristics that lead to more disclosures by one company over another. It is possible that the 

results of this study were skewed based on just a few companies in each sector. 
 



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Chuck Pier is an assistant professor of accounting at Angelo State University. He received his Ph.D. in 

business, with a concentration in accounting, from the University of Texas at Arlington. His primarily 

teaches in the areas of taxation and financial accounting. He has published in Journal of Corporate 

Accounting and Finance, CPA Journal, Journal of Accountancy, Issues in Accounting Education and 

others. 


