Shareholder Litigation Risk and the Information Environment: Revisiting Evidence from Two Natural Experiments
45 Pages Posted: 29 Jan 2018 Last revised: 29 Jun 2021
Date Written: June 28, 2021
A court case that reduced the threat of securities class action litigation led to less frequent voluntary disclosure, but did not significantly affect the level of information asymmetry. Conversely, state laws that reduced the threat of derivative litigation led to more frequent voluntary disclosure, but increased the level of information asymmetry. We reconcile these differences by highlighting that securities class action lawsuits address disclosure decisions while derivative lawsuits address both disclosure and operating decisions, and show that changes in firms’ real operations is the economic mechanism driving the association between derivative litigation risk and corporate information environments.
Keywords: Information Environment, Disclosure, Shareholder Litigation, Silicon Graphics Inc. Ruling, Universal Demand Laws
JEL Classification: D82, G30, G38, K22
Suggested Citation: Suggested Citation