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Securities class actions, corporate governance and managerial agency problems

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  • Philip Strahan
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    Abstract

    This paper provides support for the proposition that securities class actions help solve agency problems. Two key findings support this conclusion. First, firms that are more likely to suffer from agency problems are more likely to face class actions. Risky firms, large firms, young firms, low market-to-book firms and non-dividend paying firms as of the end of 1990 were more likely to face a class action filing during the January 1991 to March 1998 period. Second, the probability of CEO turnover increases dramatically after class action filings. The increase can not be explained by omitted firm-specific characteristics, financial distress, or the possibility that CEO turnover increases the likelihood that a lawyer will file a class action.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9816.

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    Date of creation: 1998
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    Handle: RePEc:fip:fednrp:9816

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    Keywords: Corporations - Finance;

    This paper has been announced in the following NEP Reports:

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    Cited by:
    1. Michael S. Gibson, 1998. ""Big Bang" deregulation and Japanese corporate governance: a survey of the issues," International Finance Discussion Papers 624, Board of Governors of the Federal Reserve System (U.S.).
    2. McTier, Brian C. & Wald, John K., 2011. "The causes and consequences of securities class action litigation," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 649-665, June.
    3. Dalla Pellegrina, Lucia & Saraceno, Margherita, 2011. "Securities class actions in the US banking sector: Between investor protection and bank stability," Journal of Financial Stability, Elsevier, vol. 7(4), pages 215-227, December.

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