Abstract

http://ssrn.com/abstract=1809172
 
 

References (26)



 


 



Troublesome Tidings? Investors’ Response to a Wells Notice


Paul A. Griffin


University of California, Davis - Graduate School of Management

Yuan Sun


Boston University - School of Management

April 13, 2011


Abstract:     
Scant evidence has amassed about how a Wells notice might affect stock prices. We find that prices fall significantly in the three days around a first-time Wells disclosure and, for disclosures that involve subsequent timely litigation, stock prices drop more sharply, by more than three percent. For companies that report the receipt date of a Wells notice, we observe no market reaction on that date but, rather, a negative reaction 2-4 days after receipt date, especially for disclosures made in a later 10-Q or 10-K. These results suggest that prior studies of market reaction to SEC or shareholder litigation events may have understated investors’ response. Consistent with investors’ negative response to a Wells notice, we further find a significant shift from insider buying to selling up to four weeks before disclosure, although this tracks best with stock return in the same period. From the standpoint of disclosure policy, our results imply that investors consider a Wells disclosure as a material event.

Number of Pages in PDF File: 36

Keywords: Wells Notice, Securities and Exchange Commission, Investor Response, Disclosure Regulation, Event Study

JEL Classification: G14, K22, M41

working papers series





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Date posted: April 17, 2011  

Suggested Citation

Griffin, Paul A. and Sun, Yuan, Troublesome Tidings? Investors’ Response to a Wells Notice (April 13, 2011). Available at SSRN: http://ssrn.com/abstract=1809172 or http://dx.doi.org/10.2139/ssrn.1809172

Contact Information

Paul A. Griffin (Contact Author)
University of California, Davis - Graduate School of Management ( email )
3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)
HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

Yuan Sun
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
1-617-353-2353 (Phone)
Feedback to SSRN


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