Using a comprehensive sample of securities litigation, we examine the effect of financial fraud on the subsequent use of external financing. We find that firms with a recent history of securities litigation, particularly more severe litigation, are less likely to seek external debt and equity...

Deleveraging, whether via reductions in debt or increases in assets, is costly due to value transfers from shareholders to creditors. It is especially costly in the presence of long-term debt and when the need to deleverage is high. This paper, first, provides empirical evidence consistent with...