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Does Media Coverage Cause Meritorious Shareholder Litigation? Evidence from the Stock Option Backdating Scandal

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  • Dain C. Donelson
  • Antonis Kartapanis
  • Christopher G. Yust

Abstract

This study examines the role of media coverage in meritorious shareholder litigation. Asserting a causal effect of the media on litigation is normally difficult because of the endogenous nature of media coverage. However, we use the Wall Street Journal’s coverage of stock option backdating to overcome these issues. Using a matched sample of firms with similar probabilities of backdating and related government investigations, we find consistent evidence of a causal relation between media coverage and meritorious litigation. We also find a negative abnormal market reaction to the articles and conduct a variety of analyses to show that it was the content of the articles, rather than the coverage itself, that resulted in litigation. Our results demonstrate that the media serves an important role in corporate accountability that both disincentivizes misconduct and holds firms accountable.

Suggested Citation

  • Dain C. Donelson & Antonis Kartapanis & Christopher G. Yust, 2021. "Does Media Coverage Cause Meritorious Shareholder Litigation? Evidence from the Stock Option Backdating Scandal," Journal of Law and Economics, University of Chicago Press, vol. 64(3), pages 567-601.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/712832
    DOI: 10.1086/712832
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    Cited by:

    1. Lixiang Wang & Wendi Hou & Yupei Liu, 2023. "How do co‐shareholding networks affect negative media coverage? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4221-4249, December.
    2. Siddiqui, Sayla & Shams, Syed, 2023. "Media coverage and patent trolls: A study on US high-tech firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).

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