Information Bundling and Securities Litigation

53 Pages Posted: 15 Jun 2016 Last revised: 28 Nov 2016

Barbara A. Bliss

University of San Diego

Frank Partnoy

University of San Diego School of Law

Michael Furchtgott

University of California, San Diego (UCSD) - Department of Economics

Date Written: November 26, 2016

Abstract

We examine two distinct forms of information bundling that can occur when a firm releases a restatement: “positive bundling,” the release of good news with the restatement, and “negative bundling,” the release of additional bad news. We use a triple differences testing approach to exploit the exogenous shock of a 2005 U.S. Supreme Court decision that heightened the loss causation requirements in securities class actions to examine how information bundling affects litigation risk and outcomes. We find that positive bundling offsets the stock decline at the restatement announcement, and significantly reduces the likelihood of litigation. In contrast, negative bundling magnifies the stock price decline accompanying a restatement, but makes litigation less attractive, by confounding the evidence about which piece of bad news caused the decline. On average, non-bundled restatements are 5.94 times more likely to result in litigation compared to bundled restatements in our set of treatment firms. Among restatements that lead to lawsuits, bundled restatements are 8.17 times more likely to be dismissed and are associated with approximately $20 to $24 million lower average settlement amounts.

Keywords: strategic information disclosure, class-action securities lawsuits, litigation risk, earnings restatements

JEL Classification: K22, K41, G14, M41

Suggested Citation

Bliss, Barbara A. and Partnoy, Frank and Furchtgott, Michael, Information Bundling and Securities Litigation (November 26, 2016). San Diego Legal Studies Paper No. 16-219. Available at SSRN: https://ssrn.com/abstract=2795164

Barbara A. Bliss

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Frank Partnoy (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619-260-2352 (Phone)
619-260-4180 (Fax)

Michael Furchtgott

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive, #0534
La Jolla, CA 92037-0534
United States
917.833.7926 (Phone)

Paper statistics

Downloads
123
Rank
186,293
Abstract Views
479