Shareholder Litigation and the Information Environment

47 Pages Posted: 29 Jan 2018 Last revised: 22 Jul 2019

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business

Eliezer M. Fich

Drexel University - Department of Finance

Thomas P. Griffin

Villanova University - Department of Finance

Date Written: July 20, 2019

Abstract

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

Boone, Audra and Fich, Eliezer M. and Griffin, Thomas, Shareholder Litigation and the Information Environment (July 20, 2019). Available at SSRN: https://ssrn.com/abstract=3106086 or http://dx.doi.org/10.2139/ssrn.3106086

Audra Boone (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Thomas Griffin

Villanova University - Department of Finance ( email )

United States

HOME PAGE: http://www.thomaspgriffin.com

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