Shareholder Litigation and Corporate Disclosure: Evidence from Derivative Lawsuits

59 Pages Posted: 16 Nov 2017 Last revised: 22 May 2018

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation

Yun Lou

Singapore Management University - School of Accountancy

Rencheng Wang

The University of Melbourne

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Date Written: November 14, 2017

Abstract

Using the staggered adoption of universal demand (UD) laws in the United States, we study the effect of shareholder litigation risk on corporate disclosure. We find that disclosure significantly increases after UD laws make it more difficult to file derivative lawsuits. Specifically, firms issue more earnings forecasts and voluntary 8-K filings, and increase the length of management discussion and analysis (MD&A) in their 10-K filings. We further assess the direct and indirect channels through which UD laws affect firms’ disclosure policies. We find that the effect of UD laws on corporate disclosure is driven by firms facing relatively higher ex ante derivative litigation risk and higher operating uncertainty, as well as firms for which shareholder litigation is a more important mechanism to discipline managers.

Keywords: Corporate Governance, Derivative Lawsuits, Corporate Disclosure, Shareholder Litigation, Universal Demand Laws

JEL Classification: M41, G10

Suggested Citation

Bourveau, Thomas and Lou, Yun and Wang, Rencheng, Shareholder Litigation and Corporate Disclosure: Evidence from Derivative Lawsuits (November 14, 2017). Journal of Accounting Research, Forthcoming; Singapore Management University School of Accountancy Research Paper No. 2018-79. Available at SSRN: https://ssrn.com/abstract=3071006 or http://dx.doi.org/10.2139/ssrn.3071006

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Yun Lou (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Rencheng Wang

The University of Melbourne ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

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