Author Abstract
We study securities litigation risk faced by foreign firms listed on US exchanges. We find that US listed foreign companies experience securities class action lawsuits at about half the rate as do US firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit-triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable US firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the US.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: October 2012
- HBS Working Paper Number: 13-036
- Faculty Unit(s): Accounting and Management