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

Marilyn F. Johnson, Ron Kasznik and Karen K. Nelson
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Marilyn F. Johnson: University of Michigan
Ron Kasznik: Stanford University
Karen K. Nelson: Stanford University

Review of Accounting Studies, 2000, vol. 5, issue 3, No 2, 217-233

Abstract: 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.

Keywords: Class Action; Market Reaction; Wealth Effect; Private Security; Shareholder Wealth (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1009612610389

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