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Why Do U.S. Securities Laws Matter to Non-U.S. Firms? Evidence from Private Class-Action Lawsuits

56 Pages Posted: 5 Oct 2011 Last revised: 12 Apr 2012

Amar Gande

Southern Methodist University

Darius P. Miller

Southern Methodist University (SMU) - Edwin L. Cox School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: April 2012

Abstract

A continuing controversy is whether U.S. securities laws are enforced against foreign firms, since public enforcement actions by the SEC are infrequent and often result in insignificant penalties. We examine private enforcement actions of U.S. securities laws and find that 269 securities class-action lawsuits were filed against foreign firms from 1996 to 2008. We document the severity of the penalties imposed on foreign firms and show that while firms paid a total of $9 billion to settle lawsuits brought against them, the monetary penalties levied by the market are even larger. During the three-day period surrounding the lawsuit filing date, there is a significant negative stock price reaction of -6.16%, which translates to an average loss of $392 million dollars. Aggregating over all firms, the total dollar loss is $73 billion. Even foreign firms without significant U.S. assets experience significant valuation losses. Moreover, insiders of the firm bear direct financial losses through their shareholdings. Our results provide evidence that enforcement actions of U.S. securities laws against foreign firms are neither uncommon nor economically insignificant events.

Suggested Citation

Gande, Amar and Miller, Darius P., Why Do U.S. Securities Laws Matter to Non-U.S. Firms? Evidence from Private Class-Action Lawsuits (April 2012). Available at SSRN: https://ssrn.com/abstract=1939059 or http://dx.doi.org/10.2139/ssrn.1939059

Amar Gande (Contact Author)

Southern Methodist University ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States
2147681945 (Phone)
2147684099 (Fax)

Darius P. Miller

Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

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