Why 10b-5 Litigation Risk is Higher for Technology and Financial Services Firms

Posted: 13 May 1998

See all articles by Christopher L. Jones

Christopher L. Jones

George Washington University - Department of Accountancy

Seth E. Weingram

Independent

Date Written: June 1996

Abstract

In this paper we analyze why 10b-5 litigation risk was higher for corporations in technology and financial services industries than for companies in other industries between 1989 and 1992. We find that technology firms were more likely to be sued primarily because of characteristics reflected in stock market variables. The estimated proportion of outstanding shares that traded during the previous year explains most of the elevated litigation risk. Contrary to conventional wisdom, the relatively high volatility of stock returns for technology firms explains only a small portion of the greater incidence of litigation in this industry. After controlling for stock market characteristics, membership in a technology industry has little incremental effect on litigation risk. Our stock market variables are unable to explain why financial services companies were more likely than other firms to be sued during this period. In fact, the estimated effect of membership in a financial services industry on litigation risk is larger once we control for these variables.

JEL Classification: M41, F18, F38, K22

Suggested Citation

Jones, Christopher L. and Weingram, Seth E., Why 10b-5 Litigation Risk is Higher for Technology and Financial Services Firms (June 1996). Available at SSRN: https://ssrn.com/abstract=2690

Christopher L. Jones (Contact Author)

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States
202-994-3529 (Phone)
202-994-5164 (Fax)

Seth E. Weingram

Independent

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