Joint Meeting of the Mid-Atlantic and Northeast Regions

Causal Impact of Litigation Outcome on Risk Factor Disclosure: Evidence from Open Source Software Litigation

• In Event: Accounting and Technology

Abstract

This study documents that increases in business risk stemming from a litigation outcome causes affected firms to increase their risk factor disclosures. We employ a setting in which a legal opinion issued by the U.S. Court of Appeals for the Federal Circuit unambiguously increased business risks related to the use of open source software (OSS) for software firms located in the U.S. District Court for the Northern District of California. Using a difference-in-differences design, we find that treated firms are, on average, 6 to 8 percent more likely to make OSS-related risk factor disclosures than controls firms, following the issuance of the opinion. Our results are robust to the inclusion of various fixed effects, state-specific time trends, a reverse causality test, and a difference-in-difference-in-differences model specification. Our results imply that risk factor disclosures reflect realistic and significant business risks, and firms comply with the SEC requirement on risk factor disclosure.

Authors

• Yufan Dong, Temple University

• Jayanthi Krishnan, Temple University