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Shareholder litigation risk and the information environment: Revisiting evidence from two natural experiments

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  • Boone, Audra
  • Fich, Eliezer
  • Griffin, Thomas

Abstract

A court case that reduced securities class action litigation risk led to less frequent voluntary disclosure but did not significantly alter information asymmetry among market participants. Conversely, state laws that reduced derivative litigation risk led to more frequent voluntary disclosure but resulted in significantly higher information asymmetry. To reconcile these differences, we highlight that 10b-5 securities class actions address disclosure, while derivative suits can address broader corporate wrongdoing, leading to differential effects on firm operations. Our results suggest that the observed effect of derivative litigation risk on the information environment is primarily driven by concomitant changes in firm operations.

Suggested Citation

  • Boone, Audra & Fich, Eliezer & Griffin, Thomas, 2023. "Shareholder litigation risk and the information environment: Revisiting evidence from two natural experiments," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000937
    DOI: 10.1016/j.jcorpfin.2023.102444
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    References listed on IDEAS

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    Cited by:

    1. Ji, Tuo & Cai, Dong, 2024. "Major shareholder equity pledge and litigation risk," Finance Research Letters, Elsevier, vol. 65(C).
    2. Gao, Wangbo & Zhang, Zicheng & He, Pinglin & Wang, Xuewu, 2025. "From accountability to transparency: The role of collective litigation in enhancing corporate information disclosure," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    3. Liu, Xiaomei & Yang, Zhenhe & Wang, Yuanqing & Gao, Boyuan, 2024. "Parent–subsidiary geographic dispersion and debt aggressiveness: Analysis from the tax enforcement perspective," International Review of Economics & Finance, Elsevier, vol. 96(PA).
    4. Li, Yang & Lin, Xiaorong & Lei, Xingfan & Ge, Ji & Guo, Jingyi & Xia, Wenxin, 2024. "Corporate financialization and litigation risk," Finance Research Letters, Elsevier, vol. 67(PA).
    5. Zhang, Huilin & Boubaker, Sabri & Ni, Xiaoran, 2024. "Litigating payouts or not? Evidence from universal demand laws," International Review of Economics & Finance, Elsevier, vol. 90(C), pages 136-153.
    6. Li, Zhi & Liu, Yue & Huang, Wenxuan, 2024. "Capital structure and corporate litigation," International Review of Economics & Finance, Elsevier, vol. 95(C).

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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