Plausibly Exogenous [1650] - Litigation Risk (08/09/2024)

LHS Variable
Corporate voluntary disclosure practices

RHS Variable
Litigation risk

Source of Exogenous Variation
Ruling from the Ninth Circuit Court of Appeals in 1999, which unexpectedly adopted a more stringent interpretation of the pleading standards (It requires plaintiffs to plead facts before they can legally form a class, and to strongly infer that the defendants were “deliberately reckless” in making the alleged misstatement or omitting any material statement. By contrast, in the other circuits proving mere recklessness is sufficient.)

- Houston, Lin, Liu, and Wei (2019), “Litigation risk and voluntary disclosure: Evidence from legal changes”