Shareholder Litigation and Readability in Financial Disclosures: Evidence from a Natural Experiment

47 Pages Posted: 18 Jun 2019 Last revised: 17 Jun 2020

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 - Finance Group

Date Written: June 16, 2020

Abstract

We use a natural experiment to weigh conflicting theories on the causal impact of shareholder litigation threat on the readability of corporate financial disclosures. In response to a 1999 Ninth Circuit Court of Appeals ruling that caused an unexpected reduction in litigation risk, we find that consistent with a full-disclosure hypothesis, firms headquartered in the Ninth Circuit significantly improved the readability of their financial disclosures relative to control firms. Our results are robust to different linguistic complexity measures, matching techniques, empirical specifications, multidimensional fixed effects that control for both time-invariant and time-varying unobservable confounders, and an alternative natural experiment.

Keywords: Securities litigation risk, Disclosure, Textual analysis, Fintech, Endogeneity

JEL Classification: G32, G38, K22, K40

Suggested Citation

Ganguly, Abhishek and Ganguly, Arup and Ge, Lin and Zutter, Chad J., Shareholder Litigation and Readability in Financial Disclosures: Evidence from a Natural Experiment (June 16, 2020). 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 - Finance Group ( 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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