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Getting Back to the Source: A New Approach to Measuring Ex Ante Litigation Risk Using Plaintiff-Lawyer Views of SEC Filings

Published online by Cambridge University Press:  19 December 2022

Antonis Kartapanis Open the ORCID record for Antonis Kartapanis [Opens in a new window]  and
Christopher G. Yust
Antonis Kartapanis*
Affiliation:
Texas A&M University Mays Business School
Christopher G. Yust
Affiliation:
Texas A&M University Mays Business School cyust@mays.tamu.edu
*
akartapanis@mays.tamu.edu (corresponding author)
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Abstract

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This study introduces a new measure of ex ante litigation risk using scrutiny of SEC filings by the source of securities litigation (plaintiffs’ lawyers) to reduce measurement error, relative to existing measures. We show that plaintiff-lawyer views proxy for the largely unobservable factors that make firms more likely to face litigation risk. Lagged views precede the public bad news revelation that triggers litigation and predicts future realized litigation risk (i.e., securities class actions filings and plaintiff-lawyer investigations) and stock market outcomes. Finally, we provide new insights into the plaintiff-lawyer case selection process that otherwise cannot be observed.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 3 , May 2024 , pp. 1213 - 1256
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Anwer Ahmed, Matteo Arena (the referee), Jane Barton, Brant Christensen, Dain Donelson, Rachel Flam, Jennifer Glenn, John Griffin, Nicholas Hallman, Jarrad Harford (the editor), Brad Hepfer, Shane Johnson, Elena Karahanna, Burch Kealey, Sarah Marriott, Gonzalo Maturana, John McInnis, Brian Monsen, Paul Ordyna, Arun Rai, Jaime Schmidt, John Schomburger, Sorin Sorescu, Edward Swanson, and Connie Weaver for helpful comments and advice. We thank Triza Nganga and Taylor Paskett for their research assistance. We gratefully acknowledge the research support provided by the Mays Business School. All errors are our own.

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