What Drives Attorney Fees in Securities Class Actions? A Multivariate and Bayesian Hierarchical Analysis

This paper provides a comprehensive empirical analysis of the evolution of attorney's compensation post the Private Securities Litigation Reform Act (PSLRA) in securities class actions. Using a novel dataset of securities class action lawsuits settlements from 1996 to 2023, this paper addresses a gap in prior research by analyzing the PSLRA's impact on attorneys' fee. This study finds that during the given period the settlement size has a strong inverse relation with attorneys' contingency fees, consistent with earlier studies. The PSLRA's provision to appoint pension funds and institutional investors as lead plaintiff(s) has been proved to be effective in repressing attorneys' fees, although their influence has declined over time. High volume courts demonstrate stricter control on requested and awarded attorneys' fee. To reduce the problem of overfitting in the model and to control from random-effects arising from circuit-level, Bayesian Hierarchical model is adopted, which reveals that the PSLRA interpretation across circuit is uniform. However, the Second and Ninth circuits showing to have better control over attorneys' fee regulation because of the strong precedents fixed within the circuits. Further, there is not evidence suggesting that awarded attorneys' fee is influenced by the volume of securities action lawsuits presided over by judges or the method used to determine fees. Additionally, big law firms do not appear to charge substantially higher fees than smaller firms. These findings, further, recommends to eliminate the use of lodestar method to reduce litigation inefficiencies. Moreover, supports to establish strong precedents within circuits to enhance the control the attorneys' fees in securities class actions.