Measuring Securities Litigation Risk

59 Pages Posted: 1 Jul 2010 Last revised: 12 Oct 2011

See all articles by Irene Y. Kim

Irene Y. Kim

George Washington University

Douglas J. Skinner

The University of Chicago - Booth School of Business

Date Written: September 1, 2011

Abstract

Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ability. Additional variables such as those that proxy for corporate governance quality and managerial opportunism do not add much to predictive ability and so do not meet the cost-benefit test for inclusion.

Keywords: Litigation risk, Securities litigation, Corporate disclosure

JEL Classification: K22, K41, M41

Suggested Citation

Kim, Irene Y. and Skinner, Douglas J., Measuring Securities Litigation Risk (September 1, 2011). Chicago Booth Research Paper No. 10-23, Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1632638 or http://dx.doi.org/10.2139/ssrn.1632638

Irene Y. Kim

George Washington University ( email )

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Washington, DC 20052
United States

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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