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Shareholder litigation risk and the information environment: Revisiting evidence from two natural experiments

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  • Boone, Audra
  • Fich, Eliezer
  • Griffin, Thomas

Abstract

A court case that reduced securities class action litigation risk led to less frequent voluntary disclosure but did not significantly alter information asymmetry among market participants. Conversely, state laws that reduced derivative litigation risk led to more frequent voluntary disclosure but resulted in significantly higher information asymmetry. To reconcile these differences, we highlight that 10b-5 securities class actions address disclosure, while derivative suits can address broader corporate wrongdoing, leading to differential effects on firm operations. Our results suggest that the observed effect of derivative litigation risk on the information environment is primarily driven by concomitant changes in firm operations.

Suggested Citation

  • Boone, Audra & Fich, Eliezer & Griffin, Thomas, 2023. "Shareholder litigation risk and the information environment: Revisiting evidence from two natural experiments," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000937
    DOI: 10.1016/j.jcorpfin.2023.102444
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    References listed on IDEAS

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    1. Le, Nhan & Nguyen, Duc Duy & Sila, Vathunyoo, 2021. "Does shareholder litigation affect the corporate information environment?," Journal of Financial Markets, Elsevier, vol. 56(C).
    2. Jarrad Harford & Feng Jiang & Rong Wang & Fei Xie, 2019. "Analyst Career Concerns, Effort Allocation, and Firms’ Information Environment," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2179-2224.
    3. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ji, Tuo & Cai, Dong, 2024. "Major shareholder equity pledge and litigation risk," Finance Research Letters, Elsevier, vol. 65(C).
    2. Zhang, Huilin & Boubaker, Sabri & Ni, Xiaoran, 2024. "Litigating payouts or not? Evidence from universal demand laws," International Review of Economics & Finance, Elsevier, vol. 90(C), pages 136-153.

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    More about this item

    Keywords

    Information environment; Disclosure; Shareholder litigation; Silicon graphics inc. ruling; Universal demand laws;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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