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
Date Written: February 2, 2021
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: Suggested Citation