Securities Law Precedents, Legal Liability, and Financial Reporting Quality

60 Pages Posted: 31 Oct 2022

See all articles by Benedikt Franke

Benedikt Franke

University of Würzburg - Business Administration & Economics

Allen Huang

Hong Kong University of Science and Technology - Department of Accounting

Reeyarn Zhiyang Li

University of Mannheim - Accounting and Taxation

Hui Wang

Renmin University of China - School of Business

Date Written: June 7, 2019

Abstract

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

Franke, Benedikt and Huang, Allen and Li, Reeyarn Zhiyang and Wang, Hui, Securities Law Precedents, Legal Liability, and Financial Reporting Quality (June 7, 2019). Available at SSRN: https://ssrn.com/abstract=4254701 or http://dx.doi.org/10.2139/ssrn.4254701

Benedikt Franke

University of Würzburg - Business Administration & Economics ( email )

Sanderring 2
Wuerzburg, D-97070
Germany

Allen Huang (Contact Author)

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong

HOME PAGE: http://www.AllenHuang.org

Reeyarn Zhiyang Li

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany
+49(621)1812286 (Phone)

HOME PAGE: http://accounting.taxation.uni-mannheim.de/en/team/assistant_professors/reeyarn_zhiyang_li/

Hui Wang

Renmin University of China - School of Business ( email )

Beijing
China

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