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Does shareholder litigation affect the corporate information environment?

Research output: Contribution to journalArticle

Nhan Le, Duc Duy Nguyen, Vathunyoo Sila

Original languageEnglish
Article number100600
Pages (from-to)1-24
Number of pages24
JournalJOURNAL OF FINANCIAL MARKETS
DOIs
Published6 Sep 2020

King's Authors

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.

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