From accountability to transparency: The role of collective litigation in enhancing corporate information disclosure

Abstract

Using a difference-in-differences (DiD) design and a sample of Chinese A-share listed firms from 2017 to 2023, we examine whether the introduction of a collective litigation system improves corporate information disclosure. Exploiting the staggered implementation of the system and validating the parallel trends assumption, we find that collective litigation significantly enhances disclosure quality. These findings are robust to alternative specifications and placebo tests. Mechanism analyses suggest that the effect is achieved primarily through a deterrence channel and enhanced external governance. Importantly, the effectiveness of the litigation regime is amplified when supported by a strong legal environment and complementary regulatory guidance. However, risk-shifting behavior by firms weakens this effect. Improvements in disclosure quality are also associated with broader market outcomes, including changes in audit pricing, investor response, and perceived default risk. Collectively, our results highlight the role of legal enforcement in shaping disclosure practices in emerging markets.