Shareholder litigation is important because it is costly and can influence firms reporting behavior. Prior research finds that attorneys incentives and specific firm characteristics drive shareholder litigation. In this study, I control for these known drivers in order to examine whether an additional behavioral factor, investor retribution, also drives shareholder litigation. Retribution theory suggests that investors will initiate litigation to punish managers for misreporting even when there is no financial incentive to do so. My study uses experimental markets to examine whether retribution plays a role in investors litigation decisions, and if this, in turn, affects managers reporting decisions. Consistent with economic theory, I find that when investors do not have an option to initiate litigation, managers frequently misreport and investors do not find their reports credible. Further, when investors have an option to initiate litigation and a financial incentive to do so (similar to current securities laws), misreporting decreases and the credibility of managers reports increases. However, inconsistent with economic theory but consistent with retribution theory, when investors have an option to initiate litigation but have no financial incentive to do so, misreporting decreases and the credibility of managers reports increases to approximately the same level as when investors have a financial incentive to initiate litigation. These findings have important implications for regulators and managers who need to accurately anticipate investors litigation decisions in order to make optimal policy and reporting decisions.
| Identifer | oai:union.ndltd.org:PITT/oai:PITTETD:etd-12152009-171932 |
| Date | 01 February 2010 |
| Creators | Brown, Jason L |
| Contributors | John Duffy, John H. Evans III, Vicky B. Hoffman, Donald V. Moser |
| Publisher | University of Pittsburgh |
| Source Sets | University of Pittsburgh |
| Language | English |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.library.pitt.edu/ETD/available/etd-12152009-171932/ |
| Rights | unrestricted, I hereby certify that, if appropriate, I have obtained and attached hereto a written permission statement from the owner(s) of each third party copyrighted matter to be included in my thesis, dissertation, or project report, allowing distribution as specified below. I certify that the version I submitted is the same as that approved by my advisory committee. I hereby grant to University of Pittsburgh or its agents the non-exclusive license to archive and make accessible, under the conditions specified below, my thesis, dissertation, or project report in whole or in part in all forms of media, now or hereafter known. I retain all other ownership rights to the copyright of the thesis, dissertation or project report. I also retain the right to use in future works (such as articles or books) all or part of this thesis, dissertation, or project report. |
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