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Prof. Bingxu Fang
Assistant Professor of Accounting
School of Accountancy
Singapore Management University

We study how judicial efficiency affects the composition of shareholder litigation and its impact on corporate disclosure. Exploiting the staggered adoption of the Case Management/Electronic Case Files (CM) system across U.S. federal district courts, we find that improved judicial efficiency significantly reduces firms’ exposure to frivolous lawsuits while increasing the incidence of meritorious claims. These shifts in litigation risk lead to more frequent earnings guidance, more extensive and readable MD&A discussions, and greater disclosure of both good and bad news among treated firms (located in jurisdictions that adopted the CM system). The effects are more pronounced for firms headquartered in states permitting third-party litigation financing and those with weaker regulatory oversight or internal governance. We also find an increase in market reactions to management forecasts among treated firms following the CM system adoption, consistent with enhanced disclosure credibility. Our findings highlight the importance of understanding judicial frictions in improving both the quality of shareholder litigation and corporate information environment.