Securities Price Consequences of the Private Securities Litigation Reform Act of 1995 and Related Events
University of Texas at Dallas - Naveen Jindal School of Management
Indian School of Business
The Private Securities Litigation Reform Act (PSLRA) increases restrictions on private litigation for securities fraud. We examine stock price reactions on legislative-event-related days of firms in four high-litigation-risk industries. Two other studies on this issue, Spiess and Tkac (1997) (ST) and Johnson et al. (2001) (JKN), conclude that shareholders considered PSLRA beneficial. While we find largely similar daily abnormal returns for event-related days that they examine, we present evidence that the timing of multiple confounding events makes the interpretation of these daily returns ambiguous. Results from additional analyses beyond those conducted by ST and JKN (market price reversal tests, analysis of additional legislative-event-related days, cumulative abnormal returns over the legislative period, and analysis of other events affecting investors' ability to bring securities-related lawsuits), are largely inconsistent with their interpretation, suggesting instead that shareholders in the four high-litigation-risk industries react negatively on average to PSLRA's restrictions on their ability to bring securities-related lawsuits.
Number of Pages in PDF File: 54
Keywords: Private Securities Litigation Reform Act of 1995, Proposition 211 on the 1996 California state ballot, aiding and abetting of securities fraud, shareholders
JEL Classification: M41, G12, K22working papers series
Date posted: March 28, 2001
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