Measuring securities litigation risk
Extant research commonly uses indicator variables for industry membership to proxy for securities litigation risk. We provide evidence on the construct validity of this measure by reporting on the predictive ability of alternative models of litigation risk. While the industry measure alone does a relatively poor job of predicting litigation, supplementing this variable with measures of firm characteristics (such as size, growth, and stock volatility) considerably improves predictive ability. Additional variables such as those that proxy for corporate governance quality and managerial opportunism do not add much to predictive ability and so do not meet the cost–benefit test for inclusion.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 53 (2012)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/jae|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, 09.
- J. Scott Long & Jeremy Freese, 2006. "Regression Models for Categorical Dependent Variables using Stata, 2nd Edition," Stata Press books, StataCorp LP, edition 2, number long2, September.
- Karpoff, Jonathan M. & Scott Lee, D. & Martin, Gerald S., 2008. "The consequences to managers for financial misrepresentation," Journal of Financial Economics, Elsevier, vol. 88(2), pages 193-215, May.
- Beatty, Anne & Weber, Joseph & Yu, Jeff Jiewei, 2008. "Conservatism and Debt," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 154-174, August.
- Rogers, Jonathan L. & Van Buskirk, Andrew, 2009. "Shareholder litigation and changes in disclosure behavior," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 136-156, March.
- Field, Laura & Lowry, Michelle & Shu, Susan, 2005. "Does disclosure deter or trigger litigation?," Journal of Accounting and Economics, Elsevier, vol. 39(3), pages 487-507, September.
- Seetharaman, Ananth & Gul, Ferdinand A. & Lynn, Stephen G., 2002. "Litigation risk and audit fees: evidence from UK firms cross-listed on US markets," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 91-115, February.
- Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
- Smith, Clifford Jr. & Watts, Ross L., 1992.
"The investment opportunity set and corporate financing, dividend, and compensation policies,"
Journal of Financial Economics,
Elsevier, vol. 32(3), pages 263-292, December.
- Smith, C.W. & Watts, R.L., 1992. "The Investment Oppotunity set and Corporate Financing, Dividend and Compensation Policies," Papers 92-02, Rochester, Business - Financial Research and Policy Studies.
- Lennox, Clive S. & Park, Chul W., 2006. "The informativeness of earnings and management's issuance of earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 439-458, December.
- Edward I. Altman & Gabriele Sabato, 2007. "Modelling Credit Risk for SMEs: Evidence from the U.S. Market," Abacus, Accounting Foundation, University of Sydney, vol. 43(3), pages 332-357.
- Zhan Shu, Susan, 2000. "Auditor resignations: clientele effects and legal liability," Journal of Accounting and Economics, Elsevier, vol. 29(2), pages 173-205, April.
- Elizabeth Demers & Philip Joos, 2007. "IPO Failure Risk," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 333-371, 05.
- Romano, Roberta, 1991. "The Shareholder Suit: Litigation without Foundation?," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 55-87, Spring.
- AC Pritchard, 2007. "Do the Merits Matter More? The Impact of the Private Securities Litigation Reform Act," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 627-652, October.
- Volker Laux, 2010. "Effects of Litigation Risk on Board Oversight and CEO Incentive Pay," Management Science, INFORMS, vol. 56(6), pages 938-948, June.
- Agnes Cheng, C.S. & He Huang, Henry & Li, Yinghua & Lobo, Gerald, 2010. "Institutional monitoring through shareholder litigation," Journal of Financial Economics, Elsevier, vol. 95(3), pages 356-383, March.
- Daines, Robert M. & Gow, Ian D. & Larcker, David F., 2010. "Rating the ratings: How good are commercial governance ratings?," Journal of Financial Economics, Elsevier, vol. 98(3), pages 439-461, December.
- Skinner, Douglas J., 1997. "Earnings disclosures and stockholder lawsuits," Journal of Accounting and Economics, Elsevier, vol. 23(3), pages 249-282, November.
- Eti Einhorn & Amir Ziv, 2008. "Intertemporal Dynamics of Corporate Voluntary Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 567-589, 06.
- Bipin Ajinkya & Sanjeev Bhojraj & Partha Sengupta, 2005. "The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 343-376, 06.
- Lowry, Michelle & Shu, Susan, 2002. "Litigation risk and IPO underpricing," Journal of Financial Economics, Elsevier, vol. 65(3), pages 309-335, September.
When requesting a correction, please mention this item's handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:290-310. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.