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Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995

Author

Listed:
  • Marilyn F. Johnson

    (University of Michigan)

  • Ron Kasznik

    (Stanford University)

  • Karen K. Nelson

    (Stanford University)

Abstract

This paper investigates the reaction ofstock prices to enactment of the Private Securities LitigationReform Act of 1995 (PSLRA). Based on a sample of 489 high-technologyfirms, we find that the PSLRA was wealth-increasing, on average,and that the market reaction is more positive for firms at greatestrisk of being sued in a securities class action. However, wealso show that the PSLRA was less beneficial for firms likelyto be the subject of a meritorious lawsuit. Collectively, ourevidence implies that shareholders generally benefit from restrictionson private securities litigation, although these benefits aremitigated when other mechanisms for curbing fraudulent activityare inadequate.

Suggested Citation

  • Marilyn F. Johnson & Ron Kasznik & Karen K. Nelson, 2000. "Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995," Review of Accounting Studies, Springer, vol. 5(3), pages 217-233, September.
    • Handle: RePEc:spr:reaccs:v:5:y:2000:i:3:d:10.1023_a:1009612610389
    DOI: 10.1023/A:1009612610389
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    References listed on IDEAS

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    1. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    2. Patricia M. Dechow & Richard G. Sloan & Amy P. Sweeney, 1996. "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 1-36, March.
    3. Sefcik, Se & Thompson, R, 1986. "An Approach To Statistical-Inference In Cross-Sectional Models With Security Abnormal Returns As Dependent Variable," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24(2), pages 316-334.
    4. Schipper, K & Thompson, R, 1983. "The Impact Of Merger-Related Regulations On The Shareholders Of Acquiring Firms," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 21(1), pages 184-221.
    5. 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.
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    Cited by:

    1. Omer Unsal & M. Kabir Hassan, 2025. "Employee treatment and firm performance: evidence from topic modelling in lawsuit announcements," Review of Quantitative Finance and Accounting, Springer, vol. 65(1), pages 1-38, July.

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