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Do All Securities Class Actions Have the Same Merit? A Stock Market Perspective

Author

Listed:
  • Charmen Loh

    (Rider University, Lawrenceville, NJ 08648, USA)

  • R. S. Rathinasamy

    (Ball State University, Muncie, IN 47306, USA)

Abstract

Securities and Exchange Commission Rule 10(b)-5 makes it unlawful for companies to make misleading statements about their prospects or to omit the disclosure of negative information. Our examination of 290 Rule 10(b)-5 lawsuits filed in the 1996–1998 period yielded two important results. First, stocks of the defendant companies, in the aggregate, experience significant declines around the time of the first filing of lawsuits. Second, not all cases have the same merit, for among the reasons that prompted the filing of class-action litigation, only four groups — those that involve accounting irregularities, fraud, making overly optimistic statements, and failure to disclose negative news — result in the most significant filing-date stock declines.

Suggested Citation

  • Charmen Loh & R. S. Rathinasamy, 2003. "Do All Securities Class Actions Have the Same Merit? A Stock Market Perspective," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 167-178.
    • Handle: RePEc:wsi:rpbfmp:v:06:y:2003:i:02:n:s0219091503001031
    DOI: 10.1142/S0219091503001031
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    Citations

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    Cited by:

    1. Antonio Figueiredo & Shahid S. Hamid & Richard Holowczak, 2021. "Stock market signals and consequences of securities class actions lawsuits: a microstructure perspective," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 629-655, August.
    2. Chunlai Ye & Lin-Hui Yu, 2018. "The effect of restatements on trading volume reactions to earnings announcements," Review of Quantitative Finance and Accounting, Springer, vol. 50(1), pages 129-180, January.
    3. Zhefeng Liu & Fayez Elayan, 2015. "Litigation risk, information asymmetry and conditional conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 44(4), pages 581-608, May.

    More about this item

    Keywords

    SEC rule 10(b)-5 violations; class action lawsuits and stockholder; wealth effects;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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