The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy

37 Pages Posted: 17 Mar 2010 Last revised: 5 Jun 2013

See all articles by Matteo P. Arena

Matteo P. Arena

Marquette University

Brandon Julio

Lundquist College of Business, University of Oregon

Date Written: December 4, 2012

Abstract

The risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in anticipation of lawsuits and not a consequence of plaintiffs targeting firms with high cash levels. The market value of cash is significantly lower for firms exposed to litigation risk. Corporate investment decisions are also affected by litigation risk, as firms reduce capital expenditures in response. Our results are robust to endogeneity concerns and possible spurious temporal effects.

Keywords: Cash Holdings, Litigation Risk, Risk Management; Corporate Investment

JEL Classification: G31, G32

Suggested Citation

Arena, Matteo P. and Julio, Brandon, The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy (December 4, 2012). Available at SSRN: https://ssrn.com/abstract=1571614 or http://dx.doi.org/10.2139/ssrn.1571614

Matteo P. Arena (Contact Author)

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
616
Abstract Views
2,539
rank
43,881
PlumX Metrics