Securities Class Actions: A Helping Hand for Bank Regulators in Trouble?

Dalla Pellegrina Lucia and Margherita Saraceno
Additional contact information
Dalla Pellegrina Lucia: Università Bocconi and Milano-Bicocca

Review of Law & Economics, 2011, vol. 7, issue 1, 214-242

Abstract: By comparing the behavior of those US banks which faced Securities Class Actions (SCAs) in the 2000-2008 period with a control group of non-sued banks, we investigate the regulatory effects of this collective litigation procedure. The paper improves upon previous research by accounting for the endogenous nature of SCAs with respect to bank performance. This issue is addressed using an instrumental variable related to court severity. Two-Stage Least Squares estimates provide evidence that SCAs can stimulate more cautious attitudes towards risk, prompting the accumulation of reserves and recapitalization. We also find they are likely to enhance bank efficiency. However, our results also suggest that SCAs significantly increase dividend payouts while inducing a contraction of bank assets. SCAs are also likely to represent a warning signal of insolvency, as it emerges from the higher probability of being sued in case of high incidence of non-performing loans. We add an extension to the main analysis considering the probability of bank failures as a function of SCA occurrence. Results indicate that the latter is not likely to accelerate the former.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.2202/1555-5879.1459 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:rlecon:v:7:y:2011:i:1:n:10

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/rle/html

DOI: 10.2202/1555-5879.1459

Access Statistics for this article

Review of Law & Economics is currently edited by Francesco Parisi

More articles in Review of Law & Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().