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Private Litigation Costs and Voluntary Disclosure: Evidence from the Morrison Ruling

58 Pages Posted: 4 May 2014 Last revised: 6 Feb 2017

James P. Naughton

Northwestern University - Kellogg School of Management

Tjomme O. Rusticus

University of Minnesota

Clare Wang

University of Iowa - Tippie College of Business

Ira Yeung

University of British Columbia (UBC) - Sauder School of Business

Date Written: February 2017

Abstract

We examine the causal effect of expected private litigation costs on voluntary disclosure using a natural experiment, the Supreme Court ruling in Morrison v. National Australia Bank. This ruling reduced expected private litigation costs for foreign cross-listed firms by eliminating the right of shareholders who purchased shares on non-US exchanges to seek compensation in US courts. We find consistent evidence that higher expected private litigation costs lead to greater voluntary disclosure using analyses that exploit the varying impact of Morrison based on both firm- and country-level attributes. Unlike a number of prior studies, we find that this positive relation does not depend on the direction of the news.

Keywords: Voluntary disclosure, litigation risk, cross-listing, Morrison ruling, bonding

JEL Classification: G15, G18, M41

Suggested Citation

Naughton, James P. and Rusticus, Tjomme O. and Wang, Clare and Yeung, Ira, Private Litigation Costs and Voluntary Disclosure: Evidence from the Morrison Ruling (February 2017). Available at SSRN: https://ssrn.com/abstract=2432371 or http://dx.doi.org/10.2139/ssrn.2432371

James P. Naughton

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Tjomme O. Rusticus

University of Minnesota ( email )

Carlson School of Management
321 19th Avenue South, Room 3-122
Minneapolis, MN 55455
United States

Clare Wang (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
(319)335-1810 (Phone)

Ira Yeung

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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