Although formal guidance instructs firms to avoid issuing lengthy and boilerplate risk factor disclosures, regulators and users of financial statements note these disclosures are excessively long and boilerplate. The persistence of these characteristics is surprising given that prior research finds that firms disclosing lengthy and boilerplate risk factors experience negative capital market consequences. We investigate two potential sources of firms' incentives to issue such disclosures by examining how judicial and regulatory assessments of firms' risk factor disclosures correlate with the disclosure length and boilerplate. Results suggest that lengthier and more boilerplate risk factor disclosures are less likely to be considered inadequate under judicial and regulatory review. Further analysis finds that when risk factor language is assessed as adequate in judicial review, industry peers borrow that language more frequently, and that judicial assessments of risk factor disclosures prompt industry peers to lengthen their risk factor disclosures.

Prior research finds that positive tone in firms' qualitative disclosures increases the risk of shareholder lawsuits. However, federal securities laws provide a safe harbor intended to shield firms' forward-looking statements from legal liability. One implication of this safe harbor is that litigation risk potentially varies between qualitative forward- and non-forward-looking statements. Consistent with this implication, we find that positive tone in forward-looking qualitative statements is significantly less related to the likelihood of subsequent litigation than is positive tone in non-forward-looking qualitative statements. On average, we fail to find a significant association between qualitative forward-looking statements and subsequent litigation. We do find evidence, however, that positive tone in qualitative forward-looking statements relates positively to subsequent litigation in two U.S. circuits in which court rulings reduced safe harbor protections for forward-looking statements. Overall, our results are consistent with the safe harbor effectively shielding firms' qualitative forward-looking statements from litigation risk.