Shareholder Litigation Risk and the Information Environment: Revisiting Evidence from Two Natural Experiments
50 Pages Posted: 29 Jan 2018 Last revised: 5 Oct 2022
Date Written: October 4, 2022
A court case that reduced securities class action litigation risk led to less frequent voluntary disclosure but did not significantly alter information asymmetry among market participants. Conversely, state laws that reduced derivative litigation risk led to more frequent voluntary disclosure but resulted in significantly higher information asymmetry. To reconcile these differences, we highlight that securities class action suits address disclosure, while derivative suits address both disclosure and operating decisions, and examine the effect on firm operations. Our results suggest that the observed effect of derivative litigation risk on the information environment is primarily driven by concomitant changes in firm operations.
Keywords: Information Environment, Disclosure, Shareholder Litigation, Silicon Graphics Inc. Ruling, Universal Demand Laws
JEL Classification: D82, G30, G38, K22
Suggested Citation: Suggested Citation