The Need to Validate Exogenous Shocks: Shareholder Derivative Litigation, Universal Demand Laws and Financial Reporting Decisions
54 Pages Posted: 30 Sep 2020
Date Written: August 19, 2020
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: Suggested Citation