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Internal and External Discipline Following Securities Class Actions

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  • Humphery-Jenner, M.

    (Tilburg University, Center for Economic Research)

Abstract

Companies are sometimes accused of misleading the market. The SEC can punish this with enforcement actions. Alternatively, shareholders can seek redress through a shareholder class action (SCA). While some literature has examined SEC actions, it has not examined SCAs, and has not examined external discipline and the managers's future employment prospects after either action. Thus, using a sample of 416 securities class actions, this paper shows that SCAs are a catalyst to promote disciplinary takeovers, CEO/CFO turnover and CEO/CFO pay-cuts, and harm CEOs future job-prospects. This suggests that even if the law governing SCAs is sub-optimal, they can still induce internal and external discipline.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-044.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011044

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Keywords: Securities Class Actions; Securities Law; Governance; Ethics; Takeovers; Managerial Turnover; Fraud; Disclosure;

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Cited by:
  1. Dutt, Tanuj & Humphery-Jenner, Mark, 2013. "Stock return volatility, operating performance and stock returns: International evidence on drivers of the ‘low volatility’ anomaly," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 999-1017.
  2. Humphery-Jenner, Mark, 2012. "The impact of the EU takeover directive on takeover performance and empire building," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 254-272.

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