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

50 Pages Posted: 17 Mar 2012

See all articles by Amar Gande

Amar Gande

Southern Methodist University (SMU) - Finance Department

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

Multiple version iconThere are 3 versions of this paper

Date Written: March 15, 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. We further find that even foreign firms without significant U.S. assets experience significant valuation losses. 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 (March 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023733 or http://dx.doi.org/10.2139/ssrn.2023733

Amar Gande (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
2147681945 (Phone)
2147684099 (Fax)

Darius P. Miller

Southern Methodist University (SMU) - Finance Department ( email )

United States

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