Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence from Universal Demand Laws

2019 ◽  
Author(s):  
Nhan Le ◽  
Duc Duy Nguyen ◽  
Vathunyoo Sila
Keyword(s):  
Litigation Risk ◽  
Public Firms ◽  
Shareholder Litigation

Does Public Ownership of Equity Improve Earnings Quality?

2010 ◽  
Vol 85 (1) ◽  
pp. 195-225 ◽  
Author(s):  
Dan Givoly ◽  
Carla K. Hayn ◽  
Sharon P. Katz
Keyword(s):  
Private Equity ◽  
Earnings Quality ◽  
Litigation Risk ◽  
Opportunistic Behavior ◽  
Publicly Traded ◽  
Public Firms ◽  
Quality Reporting ◽  
Accounting Numbers ◽  
Public Equity

ABSTRACT: We compare the quality of accounting numbers produced by two types of public firms—those with publicly traded equity and those with privately held equity that are nonetheless considered public by virtue of having publicly traded debt. We develop and test two hypotheses. The “demand” hypothesis holds that earnings of public equity firms are of higher quality than earnings of private equity firms due to stronger demand by shareholders and creditors for quality reporting. In contrast, the “opportunistic behavior” hypothesis posits that public equity firms, because their managers have a greater incentive to manage earnings, have lower earnings quality than their private equity peers. The results indicate that, consistent with the “opportunistic behavior” hypothesis, private equity firms have higher quality accruals and a lower propensity to manage income than public equity firms. We further find that public equity firms report more conservatively, in line with their greater litigation risk and agency costs.

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

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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