IDEAS home Printed from https://ideas.repec.org/a/eee/reacre/v25y2013i1p41-46.html
   My bibliography  Save this article

Resolution of restatement-induced lawsuits after the Private Securities Litigation Reform Act

Author

Listed:
  • Amoah, Nana Y.
  • Tang, Alex P.

Abstract

Using a sample of 185 restating firms that were sued between 1997 and 2005, we examine the role of accounting irregularity, other restatement characteristics and the Sarbanes Oxley Act in the resolution of litigation after the Private Securities Litigation Reform Act (PSLRA). The empirical results indicate that restatement due to an accounting irregularity and investigation of accounting misstatement by the Securities and Exchange Commission (SEC) are associated with a higher probability of settlement. Furthermore, the more negative the investor reaction to a restatement, the higher the probability that a lawsuit will be settled. Finally, we do not find any evidence that the Sarbanes Oxley Act is associated with the probability of a settled lawsuit. Our findings suggest that restatement-induced lawsuits with strong inference of fraud are settled in the period after the PSLRA. The results also highlight the importance of making a distinction between dismissed and settled restatement-induced lawsuits.

Suggested Citation

  • Amoah, Nana Y. & Tang, Alex P., 2013. "Resolution of restatement-induced lawsuits after the Private Securities Litigation Reform Act," Research in Accounting Regulation, Elsevier, vol. 25(1), pages 41-46.
    • Handle: RePEc:eee:reacre:v:25:y:2013:i:1:p:41-46
    DOI: 10.1016/j.racreg.2012.11.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1052045712000537
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.racreg.2012.11.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rogers, Jonathan L. & Van Buskirk, Andrew, 2009. "Shareholder litigation and changes in disclosure behavior," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 136-156, March.
    2. AC Pritchard, 2007. "Do the Merits Matter More? The Impact of the Private Securities Litigation Reform Act," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 627-652, October.
    3. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    4. D. Katherine Spiess & Paula A. Tkac, 1997. "The Private Securities Litigation Reform Act of 1995: the stock market casts its vote…," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(7-8), pages 545-561.
    5. Palmrose, Zoe-Vonna & Richardson, Vernon J. & Scholz, Susan, 2004. "Determinants of market reactions to restatement announcements," Journal of Accounting and Economics, Elsevier, vol. 37(1), pages 59-89, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Demirkan, Sebahattin & Fuerman, Ross D., 2014. "Auditor litigation: Evidence that revenue restatements are determinative," Research in Accounting Regulation, Elsevier, vol. 26(2), pages 164-174.
    2. Habib, Ahsan & Jiang, Haiyan & Bhuiyan, Md. Borhan Uddin & Islam, Ainul, 2014. "Litigation risk, financial reporting and auditing: A survey of the literature," Research in Accounting Regulation, Elsevier, vol. 26(2), pages 145-163.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lin, Hsien-Ping & Walker, M. Mark & Wang, Yung-Jang, 2020. "Shareholder wealth effects of corporate fraud: Evidence from Taiwan’s securities investor and futures trader protection act," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 222-243.
    2. Habib, Ahsan & Jiang, Haiyan & Bhuiyan, Md. Borhan Uddin & Islam, Ainul, 2014. "Litigation risk, financial reporting and auditing: A survey of the literature," Research in Accounting Regulation, Elsevier, vol. 26(2), pages 145-163.
    3. Agrawal, Anup & Cooper, Tommy, 2015. "Insider trading before accounting scandals," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 169-190.
    4. Wang, Qiming & Cheng, C.S Agnes & Lian, Qin & Liu, Cathy Zishang, 2022. "Law firm market share and securities class action litigation outcomes," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 596-609.
    5. Chu, Yongqiang, 2017. "Shareholder litigation, shareholder–creditor conflict, and the cost of bank loans," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 318-332.
    6. Jong Chool Park & Qiang Wu, 2009. "Financial Restatements, Cost of Debt and Information Spillover: Evidence From the Secondary Loan Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1117-1147, November.
    7. Ettredge, Michael & Huang, Ying & Zhang, Weining, 2012. "Earnings restatements and differential timeliness of accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 489-503.
    8. Sturm, Philipp, 2013. "Operational and reputational risk in the European banking industry: The market reaction to operational risk events," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 191-206.
    9. Jacco L. Wielhouwer, 2015. "The public cost of broken trust: Spillover effects of financial reporting irregularities," Journal of Trust Research, Taylor & Francis Journals, vol. 5(2), pages 132-152, October.
    10. Agrawal, Anup & Nasser, Tareque, 2012. "Insider trading in takeover targets," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 598-625.
    11. Moore, Celia & Stuart, H. Colleen & Pozner, Jo-Ellen, 2010. "Avoiding the Consequences of Repeated Misconduct: Stigma’s Licence and Stigma’s Transferability," Institute for Research on Labor and Employment, Working Paper Series qt1q97p1bs, Institute of Industrial Relations, UC Berkeley.
    12. Ilia Kuchin & Gennady Baranovskii & Yury Dranev & Alexander Chulok, 2019. "Does Green Bonds Placement Create Value For Firms?," HSE Working papers WP BRP 101/STI/2019, National Research University Higher School of Economics.
    13. Licht, Amir N. & Poliquin, Christopher & Siegel, Jordan I. & Li, Xi, 2018. "What makes the bonding stick? A natural experiment testing the legal bonding hypothesis," Journal of Financial Economics, Elsevier, vol. 129(2), pages 329-356.
    14. Thevenot, Maya, 2012. "The factors affecting illegal insider trading in firms with violations of GAAP," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 375-390.
    15. Bouteska, Ahmed, 2019. "The effect of investor sentiment on market reactions to financial earnings restatements: Lessons from the United States," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).
    16. Xin Cheng & Dan Palmon & Yinan Yang & Cheng Yin, 2023. "Strategic Earnings Announcement Timing and Fraud Detection," Journal of Business Ethics, Springer, vol. 182(3), pages 851-874, January.
    17. Stephen J. Choi & Karen K. Nelson & A. C. Pritchard, 2009. "The Screening Effect of the Private Securities Litigation Reform Act," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(1), pages 35-68, March.
    18. Joshua Cutler & Angela K. Davis & Kyle Peterson, 2019. "Disclosure and the outcome of securities litigation," Review of Accounting Studies, Springer, vol. 24(1), pages 230-263, March.
    19. Lennox, Clive & Li, Bing, 2014. "Accounting misstatements following lawsuits against auditors," Journal of Accounting and Economics, Elsevier, vol. 57(1), pages 58-75.
    20. Keval Amin & John Daniel Eshleman & Peng Guo, 2021. "Investor Sentiment, Misstatements, and Auditor Behavior," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 483-517, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reacre:v:25:y:2013:i:1:p:41-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/research-in-accounting-regulation .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.