Shareholder Litigation and Corporate Disclosure: Evidence From Derivative Lawsuits

Posted: 15 Aug 2018

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation

Yun Lou

Singapore Management University - School of Accountancy

Rencheng Wang

Singapore Management University - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2018

Abstract

Using the staggered adoption of universal demand (UD) laws in the United States, we study the effect of shareholder litigation risk on corporate disclosure. We find that disclosure significantly increases after UD laws make it more difficult to file derivative lawsuits. Specifically, firms issue more earnings forecasts and voluntary 8‐K filings, and increase the length of management discussion and analysis (MD&A) in their 10‐K filings. We further assess the direct and indirect channels through which UD laws affect firms' disclosure policies. We find that the effect of UD laws on corporate disclosure is driven by firms facing relatively higher ex ante derivative litigation risk and higher operating uncertainty, as well as firms for which shareholder litigation is a more important mechanism to discipline managers.

Keywords: Corporate Governance; Derivative Lawsuits; Corporate Disclosure; Shareholder Litigation; Universal Demand Laws

JEL Classification: G10; M41

Suggested Citation

Bourveau, Thomas and Lou, Yun and Wang, Rencheng, Shareholder Litigation and Corporate Disclosure: Evidence From Derivative Lawsuits (June 1, 2018). Journal of Accounting Research, Vol. 56, No. 3, 2018, Columbia Business School Research Paper No. 18-65, Available at SSRN: https://ssrn.com/abstract=3224612

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Yun Lou (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Rencheng Wang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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