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Do the Merits Matter More? The Impact of the Private Securities Litigation Reform Act
Adam C. Pritchard University of Michigan Law School Karen K. Nelson Rice University - Jones Graduate School of Business Marilyn F. Johnson Michigan State University - Department of Accounting & Information Systems Journal of Law, Economics and Organization, Forthcoming Michigan Legal Studies Research Paper No. 02-011 Abstract: This paper examines the effect of the Private Securities Litigation Reform Act of 1995 (PSLRA) on stockholder lawsuits. We explore the role of restatements, earnings forecasts, and insider trading in the filing and resolution of lawsuits for a sample of high technology firms. Consistent with our predictions, there is a post-PSLRA shift away from litigation based on forward-looking earnings disclosures. Conversely, there is a significantly greater correlation between litigation and both earnings restatements and abnormal insider selling after the PSLRA. Finally, we find a post-PSLRA increase in the likelihood of settlement for cases involving earnings restatements.
Keywords: securities litigation, litigation risk, accounting fraud, insider trading JEL Classifications: K22 Accepted Paper SeriesDate posted: February 14, 2006 ; Last revised: September 18, 2006Suggested CitationContact Information
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