Private Litigation Costs and Voluntary Disclosure: Evidence from the Morrison Ruling, The Accounting Review
We examine the causal effect of expected private litigation costs on voluntary disclosure using a natural experiment, the Supreme Court ruling in Morrison v. National Australia Bank. Even though this ruling had no effect on what constituted fraudulent conduct for the purpose of securities litigation, it significantly reduced the expected private litigation costs for foreign cross-listed firms by reducing the pool of potential claimants. It did so by eliminating the right of shareholders who purchased shares on non-US exchanges from seeking compensation in US courts. In the post-Morrison period, we find consistent evidence showing a decrease in voluntary disclosure using analyses that exploit the varying impact of the ruling based on both firm- and country-level attributes. Unlike a number of prior studies, we find that the positive relation between litigation and disclosure does not depend on the direction of the news.
James Naughton, Tjomme O. Rusticus, Clare Wang, Ira Yeung
Naughton, James, Tjomme O. Rusticus, Clare Wang, and Ira Yeung. 2019. Private Litigation Costs and Voluntary Disclosure: Evidence from the Morrison Ruling. The Accounting Review.