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    U.S. class action lawsuits targeting foreign firms: The country spillover effect

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    Authors
    Huang, X.
    Rui, Yixuan
    Shen, J.
    Tian, G.
    Date
    2017
    Type
    Journal Article
    
    Metadata
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    Citation
    Huang, X. and Rui, Y. and Shen, J. and Tian, G. 2017. U.S. class action lawsuits targeting foreign firms: The country spillover effect. Journal of Corporate Finance. 45: pp. 378-400.
    Source Title
    Journal of Corporate Finance
    DOI
    10.1016/j.jcorpfin.2017.05.011
    ISSN
    0929-1199
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/71930
    Collection
    • Curtin Research Publications
    Abstract

    © 2017 Elsevier B.V. We find negative price reactions among non-sued U.S.-listed foreign firms to filings of U.S. shareholder lawsuits targeting firms from their home country. This country spillover effect is stronger for lawsuits, especially accounting-related ones, targeting firms from more poorly-governed countries. We also document a stronger country spillover effect for a recent wave of U.S. lawsuits targeting Chinese issuers than for other standalone litigation. Finally, a foreign firm's price reaction to lawsuits targeting its country peers predicts its chance of being sued in the future. Our findings are consistent with investors updating a foreign firm's litigation risk upon lawsuits targeting its country peers.

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