Private Litigation Costs and Voluntary Disclosure: Evidence from Foreign Cross-Listed Firms

• In Event: Securities Litigation and Financial Reporting

Abstract

Prior research on the litigation-disclosure relation has generated inconclusive evidence. We use a natural experiment, the Supreme Court Ruling in Morrison v. National Australia Bank and the subsequent Dodd-Frank Act to provide new insights into this relation. These regulatory changes combined to lower the expected private litigation costs for foreign firms cross-listed on US exchanges. We analyze changes in voluntary disclosure behavior for foreign cross-listed firms compared to a matched sample of US firms and for foreign cross-listed firms relative to each other based on the impact of Morrison on the firm’s expected private litigation costs. We find consistent evidence that a reduction in expected private litigation costs leads to a reduction in voluntary disclosure.

Authors

• James Patrick Naughton, Northwestern University

• Ira Yeung, Northwestern University

• Clare Wang, Northwestern University

• Tjomme O Rusticus, Northwestern University