Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence from Securities Class Action Lawsuits

Using three exogenous shocks to ex ante litigation risk, including federal judge ideology and
two influential judicial precedents, we find that lower shareholder litigation risk reduces a
firm’s propensity to delist from the U.S. stock markets. The effect is at least partially driven
by indirect costs of litigation and that being a private firm can significantly reduce the threat
of litigation. Overall, the results suggest that mitigating excessive litigation costs for public
firms is crucial to ensure the continued vibrancy of the U.S. stock market