Preeti Choudhary , Jason D. Schloetzer and Jason Sturgess (Georgetown University, Georgetown University and Georgetown University – Robert Emmett McDonough School of Business) have posted Top-Tier Law Firms and Corporate Disclosure: Evidence from Regulatory Noncompliance on SSRN. Here is the abstract:
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Lawyers advise directors and senior executives on compliance with the firm’s legal obligations, including compliance with SEC disclosure rules. However, a recent SEC action against a top-tier law firm shows that lawyers may assist clients with preparing and issuing misleading financial disclosures. We use a unique institutional setting that often requires a lawyer’s assistance―the filing of a Notification of Late Filing (Form 12b-25) regarding a late Form 10-K―to examine whether top-tier law firms influence compliance. We document that 39 percent of firms fail to comply with mandatory 12b-25 disclosure rules. In addition, we find robust evidence that firms who retain a top-tier law firm are less likely to comply. In contrast, we find that firms with greater institutional ownership, higher leverage, near-term financing needs and recent restatements are more likely to comply. We find considerable variation among law firms regarding their clients’ rate of Form 12b-25 compliance. Overall, the results indicate that firms view mandatory disclosure compliance as a choice, and that ceteris paribus top-tier law firms are related to the amount of mandatory financial reporting information a firm discloses to investors.