Disclosure Benchmarking by Lawyers: Evidence From the IPO Setting

ABSTRACT Lawyers play an important advisory role in drafting financial reports, yet empirical evidence documenting the influence of external legal counsel on this process remains sparse. This study focuses on a specific aspect of lawyers’ drafting process: the practice of reviewing disclosures previously filed by other issuers—a practice termed “disclosure benchmarking.” Using initial public offering (IPO) disclosures as the setting, we find that disclosure benchmarking is associated with a more efficient Securities and Exchange Commission (SEC) review process. We further find that it is associated with several measures of disclosure quality, including disclosures that are less likely to be revised in subsequent filings, more likely to be viewed by other lawyers in the future, less likely to trigger litigation, and that are associated with lower IPO underpricing and a more efficient price response after the IPO. Overall, the evidence suggests that companies experience several favorable IPO‐related outcomes when their legal counsel engages in more disclosure benchmarking.