 Ex ante litigation risk and firm restatement decisions: Evidence from district courtsC.S. Agnes Cheng, Henry He Huang, Zhen Lei and Haitian Lu International Review of Law and Economics, 2024, vol. 79, issue C Abstract: This study examines whether ex ante securities litigation risk prompts firms to make more or less voluntary restatements. The litigation risk is captured by a new measure based on the dismissal rate of the district court where the firm is headquartered. We find that misreporting firms headquartered in lenient (high dismissal rate) court jurisdictions are more likely to make voluntary restatements. Using the U.S. Supreme Court’s Tellabs decision as an exogenous shock that reduces the leniency of some district courts, we find robust evidence that higher litigation risk decreases managers’ incentives to admit their misreporting. Our finding sheds new light on the litigation risk-voluntary disclosure paradox by pointing to a positive aspect of court leniency in motivating self-policing behavior such as restatement. Keywords: Private Securities Litigation; Pleading Standard; Court Dismissal Rate; Accounting Misreporting; Restatement (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:79:y:2024:i:c:s0144818824000188 DOI: 10.1016/j.irle.2024.106198 Access Statistics for this article International Review of Law and Economics is currently edited by C. Ott, A. W. Katz and H-B. Schäfer More articles in International Review of Law and Economics from Elsevier |
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