Does Media Coverage Cause Meritorious Shareholder Litigation? Evidence from the Stock Option Backdating Scandal

Journal of Law & Economics, Forthcoming

49 Pages Posted: 24 Jan 2021

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Antonis Kartapanis

Texas A&M University - Mays Business School

Christopher G. Yust

Texas A&M University

Date Written: November 25, 2020

Abstract

This study examines the role of media coverage on meritorious shareholder litigation. Asserting a causal effect of the media on litigation is normally difficult due to the endogenous nature of media coverage. However, we use the Wall Street Journal’s backdating coverage to overcome these issues. Using a matched sample of firms with similar probabilities of backdating and related government investigations, we find consistent evidence of a causal relation between media coverage and meritorious litigation. We also find a negative abnormal market reaction to the articles and conduct a variety of analyses to show that it was the content of the articles, rather than the coverage itself, that resulted in litigation. Our results demonstrate that the media serves an important role in corporate accountability that both disincentivizes misconduct and holds firms accountable.

Keywords: Media, Backdating, Shareholder Litigation

JEL Classification: J33, K22, K41, L82, M41, M52

Suggested Citation

Donelson, Dain C. and Kartapanis, Antonis and Yust, Christopher G., Does Media Coverage Cause Meritorious Shareholder Litigation? Evidence from the Stock Option Backdating Scandal (November 25, 2020). Journal of Law & Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3737790

Dain C. Donelson

University of Iowa ( email )

108 Pappajohn Business Building
Iowa City, 52242-1000
United States

Antonis Kartapanis

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

Christopher G. Yust (Contact Author)

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States
979.845.3439 (Phone)

HOME PAGE: http://www.christopheryust.com

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