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In re Silicon Graphics Securities Litigation: Shareholder Wealth Effects of the Interpretation of the Private Securities Litigation Reform Act?s Pleading Standard

University of Michigan Law School, Law and Economics Working Paper No. 99-018

48 Pages Posted: 5 Dec 1999  

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Karen K. Nelson

Texas Christian University - Department of Accounting

Adam C. Pritchard

University of Michigan Law School

Date Written: November 1999

Abstract

This Essay examines the stock market's reaction to the Ninth Circuit's decision in re Silicon Graphics Securities Litigation. That decision adopted the most stringent interpretation of the Private Securities Litigation Reform Act's "strong inference" standard for pleading scienter in securities fraud cases. Studying the abnormal stock returns of a sample of high technology companies, the authors find a statistically significant positive return for shareholders of these companies to the Silicon Graphics decision. They also find that these positive stock price effects were strongest for those firms most likely to be sued in securities fraud class actions, but the results were less positive for those firms most likely to be sued for committing fraud. The authors conclude that the Silicon Graphics decision enhanced shareholder wealth on average. They argue that when the Supreme Court is called upon to interpret the Reform Act's pleading standard that it should adopt the Silicon Graphics standard.

JEL Classification: M40, M41, M49, K22, G12

Suggested Citation

Johnson, Marilyn F. and Nelson, Karen K. and Pritchard, Adam C., In re Silicon Graphics Securities Litigation: Shareholder Wealth Effects of the Interpretation of the Private Securities Litigation Reform Act?s Pleading Standard (November 1999). University of Michigan Law School, Law and Economics Working Paper No. 99-018. Available at SSRN: https://ssrn.com/abstract=195110 or http://dx.doi.org/10.2139/ssrn.195110

Marilyn F. Johnson (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-0152 (Phone)
517-432-1101 (Fax)

Karen K. Nelson

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7567 (Phone)

Adam C. Pritchard

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4048 (Phone)
734-647-7349 (Fax)

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