A New Approach to Measuring Litigation Risk

Securities litigation is a major and costly source of corporate risk that can affect many aspects of companies’ operations. The task of identifying the causes and consequences of this risk is, however, challenging because researchers observe only companies that are sued and not companies that risk being sued. Moreover, surprisingly little is known about how plaintiffs’ lawyers identify which companies to sue. We use scrutiny of companies’ SEC filings by plaintiffs’ lawyers to improve estimates of litigation risk and provide new insights into why certain companies face risk.

We exploit the plaintiff-lawyer need for public information to monitor companies after … Read more