Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence From Securities Class Action Lawsuits

2019 ◽  
Author(s):  
Jonathan Brogaard ◽  
Nhan Le ◽  
Duc Duy Nguyen ◽  
Vathunyoo Sila
Keyword(s):  
Class Action ◽  
Litigation Risk ◽  
Public Firms ◽  
Shareholder Litigation ◽  
Class Action Lawsuits

scholarly journals On the role of the chief risk officer and the risk committee in insuring financial institutions against litigation

2017 ◽  
Vol 43 (1) ◽  
pp. 19-43 ◽  
Author(s):  
Arash Amoozegar ◽  
Kuntara Pukthuanthong ◽  
Thomas J. Walker
Keyword(s):  
Financial Institutions ◽  
Abnormal Returns ◽  
Class Action ◽  
Influential Factor ◽  
Risk Governance ◽  
Bank Performance ◽  
Litigation Risk ◽  
Single Measure ◽  
Content Type ◽  
Shareholder Litigation

Purpose In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues. Design/methodology/approach The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk. Findings Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions. Research limitations/implications The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance. Practical implications The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function. Originality/value This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.

U.S. class action lawsuits targeting foreign firms: The country spillover effect

2017 ◽  
Vol 45 ◽  
pp. 378-400 ◽  
Author(s):  
Xuxing Huang ◽  
Yixuan Rui ◽  
Jianfeng Shen ◽  
Gloria Y. Tian
Keyword(s):  
Spillover Effect ◽  
Class Action ◽  
Foreign Firms ◽  
Class Action Lawsuits

scholarly journals The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy

2015 ◽  
Vol 50 (1-2) ◽  
pp. 251-275 ◽  
Author(s):  
Matteo Arena ◽  
Brandon Julio
Keyword(s):  
Investment Decisions ◽  
Market Value ◽  
Corporate Investment ◽  
Class Action ◽  
Investment Policy ◽  
Capital Expenditures ◽  
Litigation Risk ◽  
Securities Litigation ◽  
Corporate Liquidity ◽  
Temporal Effects

AbstractThe risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in anticipation of lawsuits and not a consequence of plaintiffs targeting firms with high cash levels. The market value of cash is lower for firms exposed to litigation risk. Corporate investment decisions are also affected by litigation risk, as firms reduce capital expenditures in response. Our results are robust to endogeneity concerns and possible spurious temporal effects.

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