Shareholder litigation rights and stock price crash risk

Authors

Ivan Obaydin
Ralf Zurbruegg
Md Noman Hossain, The University of Texas Rio Grande Valley
Binay K. Adhikari
Ahmed Elnahas, The University of Texas Rio Grande Valley

Document Type

Article

Publication Date

2-2021

Abstract

We study the impact of shareholder-initiated litigation risk on a firm's stock price crash risk. Our empirical analysis takes advantage of the staggered adoption of universal demand laws, which led to an exogenous decline in derivative litigation risk. We find that a decline in the threat of derivative litigation reduces crash risk and that information hoarding associated with earnings management is a channel through which litigation risk affects crash risk. The relationship is also moderated by how exposed firms are to the other primary form of shareholder litigation, namely securities class-action lawsuits.

Comments

© 2020 Elsevier B.V. All rights reserved. Original published version available at https://doi.org/10.1016/j.jcorpfin.2020.101826

Recommended Citation

Obaydin, I., Zurbruegg, R., Hossain, M.N., Adhikari, B.K., Elnahas, A., 2021. Shareholder litigation rights and stock price crash risk. Journal of Corporate Finance 66, 101826. https://doi.org/10.1016/j.jcorpfin.2020.101826

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Publication Title

Journal of Corporate Finance

DOI

10.1016/j.jcorpfin.2020.101826