The Effects of Insider Trading, Seasoned Equity Offerings, Corporate Announcements, Accounting Restatements, and Sec Enforcement Actions on 10b-5 Litigation Risk

Posted: 6 Feb 1997

See all articles by Christopher L. Jones

Christopher L. Jones

George Washington University - Department of Accountancy

Seth E. Weingram

Independent

Date Written: Undated

Abstract

This paper analyzes the effects of five factors on the likelihood of a company being subject to a 10b-5 action after a major single-day stock price decline: Insider trading, seasoned equity offerings, accounting restatements, SEC enforcement actions, and fall-triggering announcements. We investigate the incremental impact of each factor after controlling for stock market characteristics that influence litigation risk. Contrary to popular perception, insider sales do not increase litigation risk. Issuing equity shares does not have a significant impact on a corporation's likelihood of being a target of 10b-5 litigation. The type of announcement that accompanies the single-day fall influences the likelihood of litigation. Firms that correct previous accounting statements and those that are subject to SEC enforcement actions are substantially more likely to be sued than other firms.

JEL Classification: M41, K22, K42

Suggested Citation

Jones, Christopher L. and Weingram, Seth E., The Effects of Insider Trading, Seasoned Equity Offerings, Corporate Announcements, Accounting Restatements, and Sec Enforcement Actions on 10b-5 Litigation Risk (Undated). Available at SSRN: https://ssrn.com/abstract=2881

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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