The number of listed firms in the U.S. has fallen by half since the late 1990s. Our paper examines whether and to what extent the costs of shareholder litigation have contributed to this trend. We find that higher litigation threat induce firms to delist from stock exchanges. The effect remains robust to controlling for the endogeneity problem between litigation risk and delisting probability. The litigation effect exacerbates for firms with severe information asymmetry and lightens for firms with high capital requirements. We also show that reduced litigation threat, triggered by the Ninth Circuit Ruling event does not prompt excessive managerial engagement of earning management. Instead, we observe a positive stock price reaction to the event for firms with high institutional ownership. Taken together, our findings suggest that the pressure imposed by shareholder litigation may partially explain for the recent fading attractiveness of the US public stock market. 

Keywords: Shareholder litigation, Securities class action lawsuit, Stock market listing, Delisting.
JEL Classification: D04, D22, G30, K22