An Empirical Investigation of Pre-Earnings Announcement Quiet Periods

Previous research suggests legal liability as a strong determinant of corporate disclosure policies and the content of corporate disclosures. We study the influence of pre-earnings announcement quiet periods on legal liability and the affect of Regulation FD on corporation's use of quiet periods. The we provide evidence on three questions: First, we test whether quiet periods have become more prominent following the implementation of regulation FD. Second, we compare the characteristics of quiet period firms to firms making earnings forecasts after the fiscal-period-end. Third, we investigate how trading volume at and before earnings announcement dates differs between companies with quiet periods and companies making earnings forecasts after the fiscal-period-end. The purpose of these tests is to better understand the effect of legal liability on non-disclosure policies. We find a substantial increase in the number of reported quiet periods after implementation of FD requirements. We also find that quiet period firms have characteristics associated with higher litigation risk. Finally, we find that volume is significantly higher before and significantly lower at earnings announcement dates associated with quiet periods.