The Spillover of Shareholder Litigation Risk and Corporate Voluntary Disclosure
55 Pages Posted: 25 Sep 2019
Date Written: September 17, 2019
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. Using a metric of individual investor attention derived from Google search intensity to instrument for peer firms’ litigation risk, we show that the effect of litigation risk spillover on management earnings forecasts is likely causal. Further analyses suggest that cross-ownership of institutional investors is a potential channel conducive to the diffusion of litigation risk externalities.
Keywords: spillover effect, litigation risk, securities litigation, voluntary disclosure
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