The Effect of Investor Attention on Fraud Discovery and Value Loss in Securities Class Action Litigation

Forthcoming in Journal of Financial Research

69 Pages Posted: 30 Aug 2017 Last revised: 22 Apr 2021

See all articles by Anna Abdulmanova

Anna Abdulmanova

Robert Morris University

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Pratik Kothari

University of Missouri at Columbia - Department of Finance

Date Written: February 2, 2021

Abstract

We examine the effect of investor attention on value loss due to securities class action lawsuits
and litigation-based fraud discovery. We find that investor attention is positively associated with
damage to corporate reputation and the magnitude of the value losses suffered by defendant firms.
The reputational damage to defendant firms with higher investor attention is evident from poor
operational performance and lower institutional ownership post-filing. Investor attention is
positively associated with the diffusion of information regarding fraud and also accelerates lawsuit
filing. The effects of investor attention, however, are not subsumed by the severity of the fraud.
Our results are robust to a battery of tests that addresses selection and endogeneity concerns.

Keywords: Corporate Litigation, Investor Attention, Google Trends, Governance

JEL Classification: G3, G30, K2

Suggested Citation

Abdulmanova, Anna and Ferris, Stephen P. and Jayaraman, Narayanan and Kothari, Pratik, The Effect of Investor Attention on Fraud Discovery and Value Loss in Securities Class Action Litigation (February 2, 2021). Forthcoming in Journal of Financial Research, Available at SSRN: https://ssrn.com/abstract=3028224 or http://dx.doi.org/10.2139/ssrn.3028224

Anna Abdulmanova (Contact Author)

Robert Morris University ( email )

6001 University Blvd.
Moon Township, PA 15108
United States

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

Pratik Kothari

University of Missouri at Columbia - Department of Finance ( email )

MO
United States

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