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Does shareholder litigation affect the corporate information environment?

Nhan Le, Duc Duy Nguyen and Vathunyoo Sila

Journal of Financial Markets, 2021, vol. 56, issue C

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.

Keywords: Shareholder litigation; Universal demand laws; Information environment; Agency theory; Managerial discretion (search for similar items in EconPapers)
JEL-codes: D82 G30 K22 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.finmar.2020.100600

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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