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Measuring securities litigation risk

Author

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  • Kim, Irene
  • Skinner, Douglas J.

Abstract

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.

Suggested Citation

  • Kim, Irene & Skinner, Douglas J., 2012. "Measuring securities litigation risk," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 290-310.
    • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:290-310
    DOI: 10.1016/j.jacceco.2011.09.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Litigation risk; Securities litigation; Corporate disclosure;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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