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Does shareholder litigation affect the corporate information environment?

Author

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  • Le, Nhan
  • Nguyen, Duc Duy
  • Sila, Vathunyoo

Abstract

Using the staggered adoption of universal demand (UD) laws in the United States, we show that the reduction in shareholder litigation risk deteriorates firms’ stock price informativeness. This reduction in stock price informativeness is due to firms changing the way they invest rather than obfuscating or withholding firm-specific information. We also show that the reduction in litigation risk is associated with higher investment-price sensitivity. Overall, despite causing a deterioration in firms’ information environment, the reduction in litigation risk does not appear to harm shareholder wealth. Our paper offers novel insights into the net economic benefits of shareholder litigation laws.

Suggested Citation

  • Le, Nhan & Nguyen, Duc Duy & Sila, Vathunyoo, 2021. "Does shareholder litigation affect the corporate information environment?," Journal of Financial Markets, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finmar:v:56:y:2021:i:c:s1386418120300690
    DOI: 10.1016/j.finmar.2020.100600
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    More about this item

    Keywords

    Shareholder litigation; Universal demand laws; Information environment; Agency theory; Managerial discretion;
    All these keywords.

    JEL classification:

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

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