THE EFFECTS OF THE SECURITIES LITIGATION UNIFORM STANDARDS ACT (SLUSA) ON EARNINGS FORECASTS

Ronald A. Stunda
Valdosta State University
ABSTRACT
Past research documents managers’ reluctance to issue voluntary earnings forecasts due
to legal and other considerations. In 1998, The U.S. Congress established the Securities
Litigation Uniform Standards Act (SLUSA). The intent was to encourage more firms to release
voluntary earnings forecasts and also to help protect these firms from potential litigation. This
study finds that when comparing firms that release voluntary earnings forecasts in a pre-SLUSA
versus a post-SLUSA environment, more firms are found to issue voluntary earnings forecasts in
a post-SLUSA environment. In addition, these forecasts tend to exhibit less bias than those in a
pre-SLUSA environment, and also tend to have more significant information content on security
prices than those in a pre-SLUSA environment. Results indicate that this Act has successfully met
its goal of generating increased and more precise forecasts by U.S. firms.