The Spillover of Shareholder Litigation Risk and Corporate Voluntary Disclosure

55 Pages Posted: 25 Sep 2019 Last revised: 10 Dec 2020

See all articles by Mengchao Ai

Mengchao Ai

University of Massachusetts Lowell - The Robert J. Manning School of Business

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business

Ting Chen

University of Massachusetts Boston - College of Management

Amy X. Sun

University of Houston

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance

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Date Written: December 09, 2020

Abstract

We study how the spillover of peer firms’ litigation risk affects a focal firm’s voluntary disclosure. We find that focal firms facing greater litigation risk spillovers reduce disclosure activities by lowering both the likelihood of issuance and the frequency of management earnings forecasts. We show that the effect is likely causal using a difference-in-differences design where an unanticipated court ruling significantly reduces certain firms’ exposure to peers’ litigation risk spillover. Further analyses suggest that cross-ownership of institutional investors is a potential mechanism through which the diffusion of litigation risk externalities occurs.

Keywords: spillover effect, litigation risk, securities litigation, voluntary disclosure

Suggested Citation

Ai, Mengchao and Bai, John (Jianqiu) and Chen, Ting and Sun, Amy X. and Wan, Chi, The Spillover of Shareholder Litigation Risk and Corporate Voluntary Disclosure (December 09, 2020). Available at SSRN: https://ssrn.com/abstract=3455567 or http://dx.doi.org/10.2139/ssrn.3455567

Mengchao Ai

University of Massachusetts Lowell - The Robert J. Manning School of Business ( email )

One University Avenue
Lowell, MA 01854
United States

John (Jianqiu) Bai (Contact Author)

Northeastern University - D'Amore-McKim School of Business ( email )

220 B RP
Boston, MA 02115
United States

Ting Chen

University of Massachusetts Boston - College of Management ( email )

Boston, MA
United States

Amy X. Sun

University of Houston

4800 Calhoun Road
Houston, TX 77204
United States

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance ( email )

Boston, MA 02125
United States

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