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Federal judge ideology, securities class action litigation, and stock price crash risk

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  • Xiaoyu Cui
  • Jianlei Han
  • Jeong Bon Kim
  • Baolei Qi

Abstract

This study investigates whether and how federal judge ideology affects firm‐specific stock price crash risk. Using a comprehensive sample of US firms, we find a decline in the likelihood of future stock price crashes for firms headquartered in more liberal circuits. In identifying potential mechanisms, we show that liberal judge ideology reduces information opacity, risk‐taking behaviours and overinvestment, and thus curbs stock price crash risk. Furthermore, the curbing effect is more salient for firms with poor monitoring quality and those in low social capital areas. Overall, this study elucidates how federal judge ideology affects capital markets.

Suggested Citation

  • Xiaoyu Cui & Jianlei Han & Jeong Bon Kim & Baolei Qi, 2024. "Federal judge ideology, securities class action litigation, and stock price crash risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 4131-4155, December.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:4:p:4131-4155
    DOI: 10.1111/acfi.13299
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