Securities Law Precedents, Legal Liability, and Financial Reporting Quality
60 Pages Posted: 31 Oct 2022
Date Written: June 7, 2019
Using 321 circuit court rulings, we construct a measure that captures the within-country variation in courts’ attitudes toward securities law violations. Case-level analyses confirm that district courts heed home-circuit precedents and are more likely to dismiss pending cases when their home circuits are more defendant-friendly. Firm-level analyses show that misreporting firms located in more defendant-friendly circuits are less likely to face securities lawsuits. Finally, in more defendant-friendly circuits, firms invest less in efforts preventing misreporting, are more likely to misreport, and have less informative stock prices. Our findings suggest that defendant-friendly precedents decrease firms’ legal liability and financial reporting quality.
Keywords: securities litigation, case law, precedents, legal liability, financial reporting quality
JEL Classification: G14, K22, K40, M41
Suggested Citation: Suggested Citation