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Institutional Activism Through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions

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  • Michael Perino

Abstract

The PSLRA's lead plaintiff provision enlisted institutional investors to monitor class counsel in order to curb the agency costs endemic in securities class actions. This article uses a sample of 731 settlements to examine the efficacy of this provision. It finds that, even when controlling for institutional self‐selection of potentially easier or higher‐quality cases, cases with public pension lead plaintiffs have larger recoveries and lower fee requests and fee awards than cases with other lead plaintiff types. The article also finds evidence consistent with the existence of a significant positive externality associated with public pension participation. Over time, fee requests and fee awards have on average declined significantly even in cases without such lead plaintiffs. These findings suggest that public pensions act as more effective monitors of class counsel than traditional plaintiffs and that the lead plaintiff provision has substantially reduced the transactions costs associated with securities class actions.

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  • Michael Perino, 2012. "Institutional Activism Through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 9(2), pages 368-392, June.
    • Handle: RePEc:wly:empleg:v:9:y:2012:i:2:p:368-392
    DOI: 10.1111/j.1740-1461.2012.01257.x
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    References listed on IDEAS

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    1. Agnes Cheng, C.S. & He Huang, Henry & Li, Yinghua & Lobo, Gerald, 2010. "Institutional monitoring through shareholder litigation," Journal of Financial Economics, Elsevier, vol. 95(3), pages 356-383, March.
    2. Willard T. Carleton & James M. Nelson & Michael S. Weisbach, 1998. "The Influence of Institutions on Corporate Governance through Private Negotiations: Evidence from TIAA-CREF," Journal of Finance, American Finance Association, vol. 53(4), pages 1335-1362, August.
    3. Smith, Michael P, 1996. "Shareholder Activism by Institutional Investors: Evidence for CalPERS," Journal of Finance, American Finance Association, vol. 51(1), pages 227-252, March.
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    2. Liu, Chelsea, 2021. "CEO gender and employee relations: Evidence from labor lawsuits," Journal of Banking & Finance, Elsevier, vol. 128(C).
    3. Wang, Yong & Mao, Connie X., 2015. "Shareholder activism of public pension funds: The political facet," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 138-152.
    4. Gurvan Branellec & Ji-Yong Lee, 2018. "Faut-il introduire en France une class action d'actionnaires (Securities Class Actions) ?," Post-Print hal-01894300, HAL.
    5. Stephen J. Choi & Jessica Erickson & A. C. Pritchard, 2020. "Working Hard or Making Work? Plaintiffs’ Attorney Fees in Securities Fraud Class Actions," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(3), pages 438-465, September.
    6. Allen Huang & Kai Wai Hui & Reeyarn Zhiyang Li, 2019. "Federal Judge Ideology: A New Measure of Ex Ante Litigation Risk," Journal of Accounting Research, Wiley Blackwell, vol. 57(2), pages 431-489, May.
    7. Krishnan, C.N.V. & Solomon, Steven Davidoff & Thomas, Randall S., 2017. "The impact on shareholder value of top defense counsel in mergers and acquisitions litigation," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 480-495.

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