The Effect of Shareholder Litigation Risk on the Information Environment: The Case of Cross-Listed Firms

2014 ◽  
Author(s):  
Anywhere Sikochi
Keyword(s):  
Information Environment ◽  
Litigation Risk ◽  
Listed Firms ◽  
Shareholder Litigation

Shareholder Litigation and Conservative Accounting: Evidence from Universal Demand Laws

2020 ◽  
Author(s):  
Hariom Manchiraju ◽  
Vivek Pandey ◽  
K. R. Subramanyam
Keyword(s):  
Corporate Governance ◽  
Insider Trading ◽  
Accounting Conservatism ◽  
Litigation Risk ◽  
Short Term ◽  
Conservative Accounting ◽  
Shareholder Litigation ◽  
Ex Ante ◽  
Governance Quality ◽  
Corporate Governance Quality

We use the staggered adoption of the Universal Demand Laws (UD Laws) to examine the effect of an exogenous reduction in shareholders' ability to litigate on the extent of accounting conservatism. On average, we find an increase in reporting conservatism post UD. The increased conservatism is concentrated in firms contemplating equity issuance, with high proportion of monitoring investors, and high corporate governance quality. In contrast, firms with specific short-term incentives for aggressive accounting, such as those narrowly beating benchmarks, those with abnormal insider trading and those likely to violate debt covenants, weakly governed firms, and firms with high ex ante litigation risk decrease reporting conservatism after UD. Our results suggest that the relation between the litigation environment and reporting conservatism is complex and dependent on specific characteristics and unique circumstances of the firms.

The Spillover of Shareholder Litigation Risk and Corporate Voluntary Disclosure

2020 ◽  
Author(s):  
Mengchao Ai ◽  
John (Jianqiu) Bai ◽  
Ting Chen ◽  
Amy X. Sun ◽  
Chi Wan
Keyword(s):  
Voluntary Disclosure ◽  
Litigation Risk ◽  
Shareholder Litigation

Seeing or believing? Cross-listing and the earnings response

2019 ◽  
Vol 45 (5) ◽  
pp. 671-685
Author(s):  
Madhurima Bhattacharyay ◽  
Feng Jiao
Keyword(s):  
Information Asymmetry ◽  
Abnormal Returns ◽  
Information Environment ◽  
Analyst Coverage ◽  
Content Type ◽  
International Firms ◽  
Listed Firms ◽  
Cross Listing ◽  
Earnings Response ◽  
The Usa

Purpose The purpose of this paper is to identify and examine two contrasting mechanisms of information asymmetry for cross-listed firms with respect to the information environment and its impact on earnings response. Design/methodology/approach The study empirically assesses two mechanisms of information asymmetry (“seeing” and/or “believing”) by looking at abnormal returns and volume reactions to international firms’ earnings announcements pre- and post-listing in the USA from 1990 to 2012. Findings The authors’ findings indicate that investors “seeing” more (media and analyst coverage) decrease the earnings response; however, “believing” more or gaining more credibility has the opposite effects. Based on the results, both mechanisms of information asymmetry can take effect simultaneously. Research limitations/implications The study sheds light on the multi-dimensional impact of the improved information environment that non-US firms face when they list their securities on US exchanges. Originality/value This study identifies and reconciles these two mechanisms of information asymmetry (visibility and credibility) under one setting and estimates the magnitude of each effect empirically.

scholarly journals Disclosure Tone and Shareholder Litigation

2011 ◽  
Vol 86 (6) ◽  
pp. 2155-2183 ◽  
Author(s):  
Jonathan L. Rogers ◽  
Andrew Van Buskirk ◽  
Sarah L. C. Zechman
Keyword(s):  
Earnings Announcements ◽  
General Purpose ◽  
Data Availability ◽  
Litigation Risk ◽  
Shareholder Litigation ◽  
Disclosure Tone ◽  
Context Specific ◽  
Jel Classifications

ABSTRACT We examine the relation between disclosure tone and shareholder litigation to determine whether managers' use of optimistic language increases litigation risk. Using both general-purpose and context-specific text dictionaries to quantify tone, we find that plaintiffs target more optimistic statements in their lawsuits and that sued firms' earnings announcements are unusually optimistic relative to other firms experiencing similar economic circumstances. These findings are consistent with optimistic language increasing litigation risk. In addition, we find incrementally greater litigation risk when managers are both unusually optimistic and engage in abnormal selling. This finding suggests that firms can mitigate litigation risk by ensuring that optimistic statements are not contradicted by insider selling. Finally, we find that insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic. JEL Classifications: G38; K22; M41; M48. Data Availability: Data are available from sources indicated in the text.

scholarly journals On the role of the chief risk officer and the risk committee in insuring financial institutions against litigation

2017 ◽  
Vol 43 (1) ◽  
pp. 19-43 ◽  
Author(s):  
Arash Amoozegar ◽  
Kuntara Pukthuanthong ◽  
Thomas J. Walker
Keyword(s):  
Financial Institutions ◽  
Abnormal Returns ◽  
Class Action ◽  
Influential Factor ◽  
Risk Governance ◽  
Bank Performance ◽  
Litigation Risk ◽  
Single Measure ◽  
Content Type ◽  
Shareholder Litigation

Purpose In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues. Design/methodology/approach The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk. Findings Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions. Research limitations/implications The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance. Practical implications The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function. Originality/value This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.

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