Shareholder Litigation Risk and the Information Environment: Revisiting Evidence from Two Natural Experiments

47 Pages Posted: 29 Jan 2018 Last revised: 16 Mar 2021

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

Eliezer M. Fich

Drexel University - Department of Finance

Thomas P. Griffin

Villanova University - Department of Finance & Real Estate

Date Written: March 16, 2021

Abstract

Reducing the threat of shareholder litigation through securities class actions lowers voluntary disclosure quantity, but not the accuracy of earnings forecasts. Conversely, reducing the threat of shareholder litigation through derivative lawsuits prompts increases in voluntary disclosure quantity and decreases in both earnings forecast accuracy and mandatory disclosure quality. We reconcile these differences by showing that changes to firm operations are the economic mechanism driving changes in corporate information environments after the threat of derivative lawsuits exogenously declines. This evidence comports with the fact that, while securities class action lawsuits address disclosure decisions, derivative litigation also covers decisions about real operations.

Keywords: Information Environment, Disclosure, Shareholder Litigation, Ninth Circuit Ruling, Universal Demand Laws

JEL Classification: D82, G30, G38, K22

Suggested Citation

Boone, Audra and Fich, Eliezer M. and Griffin, Thomas, Shareholder Litigation Risk and the Information Environment: Revisiting Evidence from Two Natural Experiments (March 16, 2021). 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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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 & Real Estate ( email )

United States

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

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