This study examines the relationship between earnings warnings, likelihood of litigation, and settlement amount following the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA) and Regulation Fair Disclosure (REG FD). In addition, prior warning/litigation/settlement models are expanded to include cross-sectional variation in warning content. A simultaneous-equations approach is used to jointly estimate management's decision to issue a warning and the likelihood of litigation using a matched sample of sued and non-sued firms.;The analysis indicates that PSLRA impacted the warning/litigation relationship. The sign of the coefficient for warning changes from negative to positive during the time case law for PSLRA was established. The content of warning affects litigation likelihood. Content related variables used in this study are: (1) the specificity of the earnings estimate (point, range, open-ended); (2) inclusion of attributions (internal or external); and (3) information other than earnings forecasts (revenue or expense data, general statements). Specificity of the earnings estimate is significant to the likelihood of litigation unless other content in warnings is modeled. Immediately following PSLRA external attributions decrease the likelihood of litigation; however, neither internal nor external attributions are significant in periods after PSLRA is established in case law. Information about revenues decreases the likelihood of litigation in the post-PSLRA period; while both revenue and expense information decrease the likelihood of litigation post-REG FD. Contrary to prior research on disclosures, non-verifiable other information included in warnings appears to be significant in firms that have a high litigation risk.
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