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Abstract

This paper investigates the reaction of stock prices to enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA). Based on a sample of 489 high-technology firms, we find that the PSLRA was wealth-increasing, on average, and that the market reaction is more positive for firms at greatest risk of being sued in a securities class action. However, we also show that the PSLRA was less beneficial for firms likely to be the subject of a meritorious lawsuit. Collectively, our evidence implies that shareholders generally benefit from restrictions on private securities litigation, although these benefits are mitigated when other mechanisms for curbing fraudulent activity are inadequate.

Are SPAC Revenue Forecasts Informative?

“…In 1995, Congress passed the PSLRA to curtail abusive litigation that hindered firm managers' ability to communicate forecasts to the public market (Johnson, Kasznik, and Nelson 2000). The PSLRA offers public companies Safe Harbor from liability for forward-looking statements.…”

Risk Mitigation of Corporate Social Performance in US Class Action Lawsuits

“…and testing only for the marginal effects of ESG controversies and ESG performance. We considered extensive previous research that has already examined a large set of potentially relevant explanatory variables for litigation risk(Kim and Skinner 2012;Johnson, Kasznik, and Nelson 2000;Brown, Hillegeist, and Lo 2005;Rogers and Stocken 2005).Johnson et al, Brown et al, and Rogers and Stocken found strong evidence that market and return variables play a vital role in explaining litigation risk-beyond the FPS industry variable fromFrancis et al (1994).…”