Drawing on the political theory of judicial decision making, our paper proposes a new and parsimonious ex ante litigation risk measure: federal judge ideology. We find that judge ideology complements existing measures of litigation risk based on industry membership and firm characteristics. Firms in liberal circuits (the third quartile in ideology) are 33.5% more likely to be sued in securities class action lawsuits than those in conservative circuits (the first quartile in ideology). This result is stronger after the U.S. Supreme Court's ruling in the Tellabs case. We next show that the effect of judge ideology on litigation risk is greater for firms with more sophisticated shareholders and with higher expected litigation costs. Furthermore, judicial appointments affect litigation risk and the value of firms in the circuit, highlighting the economic consequences of political appointments of judges. Finally, using our new measure, we document that litigation risk deters managers from providing long‐term earnings guidance, a result that existing measures of litigation risk cannot show.
Academic & Professional Qualification
- PhD in Accounting, University of Oregon
- B.B.A, The Chinese University of Hong Kong
Biography
- Professor, The University of Hong Kong (HKU), 2017 – present
- Associate Professor, Hong Kong University of Science and Technology (HKUST), 2010 – 2016
- Assistant Professor, Hong Kong University of Science and Technology (HKUST), 2004 – 2010
Research Interest
- Financial and managerial accounting
- Capital markets
- Contracting
- Litigation Studies
Selected Publications
- Judge Ideology and Opportunistic Insider Trading.” Journal of Financial and Quantitative Analysis, 2024, forthcoming. (with Allen Huang and Yue Zheng).
- “New product announcements, innovation disclosure, and future firm performance.” Review of Accounting Studies, 2023. forthcoming. (with Jenny Chu, Yuan He and Reuven Lehavy).
- “Analysts’ Book Value Forecasts: Initial Evidence from the Perspective of Real-Options-Based Valuation.” Contemporary Accounting Research, 2022, 39(4), 2481-2516. (with Alfred Zhu Liu, Schneible Jr, Richard and Guochang Zhang).
- “The Rewards for Meeting or Beating Managers’ Own Earnings Guidance.” Accounting Horizons, 2021, 35(1), 87-103. (with Alfred Zhu Liu and Yao Zhang).
- “Maintaining a Reputation for Consistently Beating Earnings Expectations and the Slippery Slope to Earnings Manipulation.” Contemporary Accounting Research, 2019, 36(4), 1966-1998. (with Jenny Chu, Patricia Dechow, and Annika Wong).
- “Federal Judge Ideology: A New Measure of Ex-Ante Litigation Risk.” Journal of Accounting Research, 2019, 57(2), 431-489. (with Allen Huang and Reeyarn Li).
- “The Effect of Major Customer Concentration on Firm Profitability: Competitive or Collaborative?” Review of Accounting Studies, 2019, 24(1), 189-229. (with Chuchu Liang and Eric Yeung).
- “On the Persistence and Pricing of Industry-Wide and Firm-Specific Earnings, Cash Flows, and Accruals.” Journal of Accounting and Economics, 2016, 61(1), 185–202. (with K. Nelson and Eric Yeung).
- “Analyst Report Readability and Stock Returns.” Journal of Business Finance and Accounting, 2016, 43(1-2), 98–130. (with Hsieh, C. C. and Y. Zhang).
- “Are CEOs and CFOs Rewarded for Disclosure Quality?” The Accounting Review, 2015, 90(3), 1013-1047. (with Steve Matsunaga).
- “The Market’s Valuation of Fraudulently Reported Earnings.” Journal of Business Finance and Accounting, 2014, 41(5-6), 627–651. (with Clive Lennox and G. Zhang).
- “Underreaction to Industry-Wide Earnings and the Post-Forecast Revision Drift.” Journal of Accounting Research, 2013, 51(4), 701-737. (with Eric Yeung).
- “Corporate Suppliers and Customers and Accounting Conservatism.” Journal of Accounting and Economics, 2012, 53(1-2), 115-135. (with Sandy Klasa and Eric Yeung).
- “Managers’ EPS Forecasts: Nickeling and Diming the Market?” The Accounting Review, 2010, 85(1), 63-95. (with Linda Smith Bamber and Eric Yeung).
- “Does Religion Matter in Corporate Decision Making in America?” Journal of Financial Economics, 2009, 93(3), 455-473. (with Gilles Hilary).
- “The Impact of Conservatism on Management Earnings Forecast.” Journal of Accounting and Economics, 2009, 47(3), 192-207. (with Dale Morse and Steve Matsunaga).
Awards and Honours
- Dean’s Letter for Excellent MBA Teaching, 2015
- Franklin Prize for Teaching Excellence, (Undergraduate Teaching), 2005
Professional Memberships
- Certified Public Accountant, Washington, U.S.A.
Recent Publications
1May
1 May 2019
Journal of Accounting Research