Shareholder Litigation and the Information Environment
47 Pages Posted: 29 Jan 2018 Last revised: 22 Jul 2019
Date Written: July 20, 2019
Prior research argues that universal demand (UD) laws, which weaken shareholders’ litigation rights, incentivize managers to report more and better-quality information. This view relies on post-UD increases in the length and frequency of voluntary disclosure. We find that the increase in disclosure quantity coincides with a decrease in the quality of both voluntary and mandatory disclosure, leading to greater information asymmetry among analysts and in the trading environment. Moreover, managers appear to benefit from the reduced transparency through more profitable insider trades. Therefore, in contrast with prior work, we conclude that corporate information environments deteriorate when shareholder litigation rights decline.
Keywords: information environment, shareholder litigation, financial misconduct, universal demand laws
JEL Classification: D82, G30, G38, K22
Suggested Citation: Suggested Citation