Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence From Securities Class Action Lawsuits

58 Pages Posted: 14 Apr 2020 Last revised: 13 Aug 2021

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Nhan Le

Australian National University

Duc Duy Nguyen

Durham University

Vathunyoo Sila

University of Edinburgh

Date Written: August 12, 2021

Abstract

This paper examines whether shareholder litigation contributes to the decline in the number of U.S. stock market listings. We find that higher litigation risk induces firms to delist. We establish causality using two exogenous shocks to ex-ante litigation risk, including federal judge ideology and an influential judicial precedent. We find that the effect is at least partially driven by indirect costs of litigation and that being private can significantly reduce the threat of litigation. The results suggest that mitigating excessive litigation costs for public firms is crucial to ensure the continued vibrancy of the U.S. stock market.

Keywords: Shareholder litigation, Securities class action lawsuit, Stock market listing, Delisting

JEL Classification: D04, D22, G30, K22

Suggested Citation

Brogaard, Jonathan and Le, Nhan and Nguyen, Duc Duy and Sila, Vathunyoo, Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence From Securities Class Action Lawsuits (August 12, 2021). Available at SSRN: https://ssrn.com/abstract=3559949 or http://dx.doi.org/10.2139/ssrn.3559949

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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

Nhan Le (Contact Author)

Australian National University ( email )

26C Kingsley Street
Acton, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://sites.google.com/a/colorado.edu/nhan-le/

Duc Duy Nguyen

Durham University ( email )

Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

HOME PAGE: http://sites.google.com/site/louisnguyen6589/home

Vathunyoo Sila

University of Edinburgh ( email )

29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom
+447428747109 (Phone)

HOME PAGE: http://https://www.business-school.ed.ac.uk/staff/ben-sila

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