Securities Litigation Risk for Foreign Companies Listed in the U.S.

52 Pages Posted: 19 Oct 2012 Last revised: 18 Jun 2014

See all articles by Beiting Cheng

Beiting Cheng

Harvard University - Harvard Business School

Suraj Srinivasan

Harvard Business School

Gwen Yu

University of Michigan

Date Written: 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.

Keywords: Litigation Risk, Cross Listing, Bonding, 10b-5, Securities Litigation, U.S. Listing, Class Action

JEL Classification: F20, G15, G30, K22, M41

Suggested Citation

Cheng, Beiting and Srinivasan, Suraj and Yu, Gwen, Securities Litigation Risk for Foreign Companies Listed in the U.S. (June 2014). Available at SSRN: https://ssrn.com/abstract=2163864 or http://dx.doi.org/10.2139/ssrn.2163864

Beiting Cheng

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Suraj Srinivasan (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=10700

Gwen Yu

University of Michigan ( email )

701 Tappan Street
R3350
Ann Arbor, MI MI 48109
United States
7347635934 (Phone)

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