We examine the effect of fair value standards on firms' litigation risk. The discretion required by fair value allows plaintiffs to “second guess” managers' judgments, potentially increasing litigation risk. Alternatively, the complexity of fair value may decrease litigation risk if it's more difficult to demonstrate scienter. Our evidence suggests firms that rely more on fair value standards are relatively less likely to be sued. We find no evidence of a relation between fair value and the risk of misstatements or fraud, but do find evidence of a slight increase in firms' litigation risk via an increase in volatility. However, the primary effect of fair value standards in reducing litigation risk dominates the volatility effect. Finally, we find average litigation rates increase after the passage of new standards, but less so for fair value standards. On balance, our evidence suggests fair value is a relatively low litigation risk area in GAAP.

中文翻译：

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公允价值会计准则和证券诉讼


我们研究了公允价值标准对公司诉讼风险的影响。公允价值所要求的自由裁量权允许原告“二次猜测”管理者的判断，从而可能增加诉讼风险。或者，如果更难以证明科学性，公允价值的复杂性可能会降低诉讼风险。我们的证据表明，更多依赖公允价值标准的公司被起诉的可能性相对较小。我们没有发现公允价值与错报或欺诈风险之间存在关系的证据，但确实发现了波动性增加导致公司诉讼风险略有增加的证据。然而，公允价值准则在降低诉讼风险方面的主要作用超过了波动效应。最后，我们发现新准则通过后平均诉讼率有所上升，但公允价值准则的诉讼率有所下降。总的来说，我们的证据表明公允价值是公认会计原则中诉讼风险相对较低的领域。