The Need to Validate Exogenous Shocks: Shareholder Derivative Litigation, Universal Demand Laws and Financial Reporting Decisions

54 Pages Posted: 30 Sep 2020

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Laura Kettell

The University of Texas at Austin

John M. McInnis

University of Texas at Austin - Department of Accounting

Sara Toynbee

University of Texas at Austin

Date Written: August 19, 2020

Abstract

This study examines how universal demand (UD) laws affect shareholder derivative litigation risk and financial reporting decisions. We provide evidence that the incremental risk from derivative litigation beyond parallel securities class actions or SEC actions appears low in financial reporting cases. We then show that the adoption of UD laws had no meaningful impact on derivative litigation from 1996-2015. We also find no evidence that UD laws change accounting or voluntary disclosure behavior. Ultimately, the use of UD laws as shocks to accounting- or disclosure-related litigation risk appears dubious. However, derivative litigation risk may still interest researchers outside UD settings.

Keywords: Derivative Litigation, Universal Demand, Securities Class Actions, Litigation Risk, Financial Reporting

JEL Classification: K22; K41; M41

Suggested Citation

Donelson, Dain C. and Kettell, Laura and McInnis, John M. and Toynbee, Sara, The Need to Validate Exogenous Shocks: Shareholder Derivative Litigation, Universal Demand Laws and Financial Reporting Decisions (August 19, 2020). Available at SSRN: https://ssrn.com/abstract=3677566 or http://dx.doi.org/10.2139/ssrn.3677566

Dain C. Donelson

University of Iowa ( email )

108 Pappajohn Business Building
Iowa City, 52242-1000
United States

Laura Kettell

The University of Texas at Austin ( email )

United States

John M. McInnis

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-232-6791 (Phone)

Sara Toynbee (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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