Shareholder Wealth Effects of the Private Securities Litigation
Reform Act of 1995

Johnson, Marilyn F.; Kasznik, Ron; Nelson, Karen K.

doi:10.2139/ssrn.229389

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Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995

33 Pages Posted: 15 Jul 2000

See all articles by Marilyn F. Johnson

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Karen K. Nelson

Texas Christian University - Department of Accounting

There are 2 versions of this paper

Abstract

This paper investigates the reaction of stock prices to enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA). Based on a sample of 489 high-technology firms, we find that the PSLRA was wealth-increasing, on average, and that the market reaction was more positive for firms at greatest risk of being sued in a securities class action. However, we also show that the PSLRA was less beneficial for firms likely to be the subject of a meritorious lawsuit. Collectively, our evidence implies that shareholders generally benefit from restrictions on private securities litigation, although these benefits are mitigated when other mechanisms for curbing fraudulent activity are inadequate.

JEL Classification: M41, K22, G12, G14

Suggested Citation: Suggested Citation

Johnson, Marilyn F. and Kasznik, Ron and Nelson, Karen K., Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995. Available at SSRN: https://ssrn.com/abstract=229389 or http://dx.doi.org/10.2139/ssrn.229389