Shareholder Litigation Risk and Readability of Corporate Financial Disclosures: Evidence from Natural Experiments

57 Pages Posted: 18 Jun 2019 Last revised: 16 Jan 2021

See all articles by Abhishek Ganguly

Abhishek Ganguly

University of Oklahoma

Arup Ganguly

University of Mississippi

Lin Ge

University of Mississippi

Chad J. Zutter

University of Pittsburgh

Date Written: January 15, 2021

Abstract

We use a natural experiment to weigh conflicting theories on the impact of shareholder litigation risk on the readability of corporate financial disclosures. In response to a Ninth Circuit Court of Appeals ruling that unexpectedly reduced litigation risk, we find that firms in the Ninth Circuit significantly improved the readability of their financial disclosures relative to control firms. This supports the idea that litigation risk discourages firms from providing financial disclosures with greater readability. Our finding is robust to different linguistic complexity measures and matching techniques, fixed effects for both time-invariant and time-varying unobservable confounders, and an alternative natural experiment.

Keywords: Shareholder litigation risk, Corporate financial disclosure, Textual analysis, Endogeneity

JEL Classification: G32, G38, K22, K40

Suggested Citation

Ganguly, Abhishek and Ganguly, Arup and Ge, Lin and Zutter, Chad J., Shareholder Litigation Risk and Readability of Corporate Financial Disclosures: Evidence from Natural Experiments (January 15, 2021). Available at SSRN: https://ssrn.com/abstract=3401891 or http://dx.doi.org/10.2139/ssrn.3401891

Abhishek Ganguly

University of Oklahoma ( email )

Norman, OK 73019
United States

Arup Ganguly (Contact Author)

University of Mississippi ( email )

Oxford, MS 38655
United States

Lin Ge

University of Mississippi ( email )

Oxford, MS 38655
United States

Chad J. Zutter

University of Pittsburgh ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

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