Shareholder litigation rights and stock price crash risk

Ivan Obaydin, Ralf Zurbruegg, Md Noman Hossain, Binay Kumar Adhikari and Ahmed Elnahas

Journal of Corporate Finance, 2021, vol. 66, issue C

Abstract: We study the impact of shareholder-initiated litigation risk on a firm's stock price crash risk. Our empirical analysis takes advantage of the staggered adoption of universal demand laws, which led to an exogenous decline in derivative litigation risk. We find that a decline in the threat of derivative litigation reduces crash risk and that information hoarding associated with earnings management is a channel through which litigation risk affects crash risk. The relationship is also moderated by how exposed firms are to the other primary form of shareholder litigation, namely securities class-action lawsuits.

Keywords: Shareholder litigation risk; Derivative lawsuits; Universal demand; Stock price crash risk; Securities class action lawsuits; Judge ideology (search for similar items in EconPapers)
JEL-codes: G14 G30 G38 K22 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920302704

DOI: 10.1016/j.jcorpfin.2020.101826

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