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On Litigation Risk and Disclosure Complexity: Evidence from Canadian Firms Cross-Listed in the US

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  • Gillan, Stuart L.
  • Panasian, Christine A.

Abstract

We find that D&O insurance premiums for Canadian firms cross-listed in the US are more than twice those of Canadian-only listed firms, and audit fees are approximately 50% higher. While this supports the view that both service-providers view the US as a more litigious environment, our findings also suggest that these differentials for cross-listed firms reflect premia for both litigation risk and the complexity of firms' financial disclosures. In particular, we show that D&O liability insurers charge differently for cross-listed firms that have different levels of disclosure; while D&O premiums are significantly higher for all cross-listed firms, they increase and then decrease with increased disclosure complexity. In contrast, audit fees increase monotonically as the filing complexity increases. We also find that auditors appear to price abnormal premiums charged by D&O insurers. Thus, audit fee premia for cross-listed firms appear to capture aspects of both litigation risk and increased disclosure complexity.

Suggested Citation

  • Gillan, Stuart L. & Panasian, Christine A., 2014. "On Litigation Risk and Disclosure Complexity: Evidence from Canadian Firms Cross-Listed in the US," The International Journal of Accounting, Elsevier, vol. 49(4), pages 426-454.
    • Handle: RePEc:eee:accoun:v:49:y:2014:i:4:p:426-454
    DOI: 10.1016/j.intacc.2014.10.003
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    Cited by:

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    2. Hong, Philip K. & Hwang, Seokyoun, 2018. "Fair value disclosure of pension plan assets and audit fees," Advances in accounting, Elsevier, vol. 41(C), pages 88-96.
    3. Park, Min, 2018. "What drives corporate insurance demand? Evidence from directors' and officers' liability insurance in Korea," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 235-257.

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    More about this item

    Keywords

    Litigation; Disclosure; Audit fees; D&O liability insurance; Cross-listed;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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