Private Litigation Costs and Voluntary Disclosure: Evidence from the Morrison Ruling

We examine the causal effect of expected private litigation costs on voluntary disclosure using a natural experiment, the Supreme Court ruling in Morrison v. National Australia Bank. This ruling reduced expected private litigation costs for foreign cross-listed firms by eliminating the right of shareholders who purchased shares on non-US exchanges to seek compensation in US courts. We find consistent evidence that higher expected private litigation costs lead to greater voluntary disclosure using analyses that exploit the varying impact of Morrison based on both firm- and country-level attributes. Unlike a number of prior studies, we find that this positive effect does not depend on the direction of the news.