The Cost of Disclosure Regulation: Evidence from D&O Insurance and Non-Meritorious Securities Litigation

There is an extensive literature on the benefits of mandatory disclosure by firms, but measuring the costs of such disclosure has been more challenging (Leuz and Wysocki 2016). In particular, while some believe that mandatory disclosure could increase litigation against firms (e.g. Coates and Srinivasan 2014), few papers find such evidence. We use proprietary directors’ and officers’ (D&O) insurance data and a natural experiment based on inter-state variation in disclosure regulation to examine this question. Specifically, state law requires that firms incorporated in New York disclose D&O insurance premiums. We examine whether D&O insurance premiums for New York and non-New … Read more

Scienter Pleading and Rule 10b-5: Empirical Analysis and Behavioral Implications

Although the volume of private securities class action filings has dropped recently, these lawsuits remain both a significant worry for issuers, investment banks, auditing firms and other potential defendants, and an arguably useful supplement to governmental enforcement of securities antifraud laws.  Because we both teach a course in accounting ethics and accountants’ liability and have found ourselves at a loss to clearly explain to our students the law of scienter pleading in Rule 10b-5 cases against auditors, we undertook research that culminated in an article entitled Scienter Pleading and Rule 10b-5: Empirical Analysis and Behavioral Implications, just published in … Read more

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Editor's Tweet: Professors Robert Prentice and Dain Donelson of University of Texas at Austin law discuss scienter pleading and Rule 10b-5