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Securities Litigation Risk for Foreign Companies Listed in the U.S.Beiting ChengHarvard University - Harvard Business School Suraj SrinivasanHarvard Business School Gwen YuHarvard Business School June 2014 Abstract: We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S.
Number of Pages in PDF File: 52 Keywords: Litigation Risk, Cross Listing, Bonding, 10b-5, Securities Litigation, U.S. Listing, Class Action JEL Classification: F20, G15, G30, K22, M41 Date posted: October 19, 2012 ; Last revised: June 18, 2014Suggested CitationContact Information
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