Disclosure and lawsuits ahead of IPOs
The Accounting Review
52 Pages Posted: 30 Mar 2020 Last revised: 18 Jul 2022
Date Written: July 1, 2022
Abstract
We examine whether IPO registration disclosures expose firms to greater nonshareholder litigation risk. Using hand-collected data on lawsuits initiated at federal and state courts against IPO firms, we show that firms that submit their IPO registration statement with the SEC publicly experience a 16% increase in litigation risk between the registration filing and issuance date. Consistent with the public filing of the registration driving this heightened litigation risk, firms that file their registration confidentially under the JOBS Act do not experience such an increase in litigation risk. The effects of confidential filing are concentrated among business-initiated lawsuits, intellectual property/ contract lawsuits, and potentially meritless lawsuits. We find no disproportionate increase in post-IPO lawsuits for confidential filers, suggesting that withholding information during the IPO registration period mitigates litigation risk.
Keywords: Corporate disclosure; nonshareholder lawsuits; initial public offerings
JEL Classification: G32, K20, K41, M41
Suggested Citation: Suggested Citation