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

Ron Kasznik

Stanford Graduate School of Business

Karen K. Nelson

Texas Christian University - Department of Accounting

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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

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

Marilyn F. Johnson

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)

Ron Kasznik

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-9740 (Phone)
650-725-6152 (Fax)

Karen K. Nelson (Contact Author)

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)

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