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

53 Pages Posted: 30 Aug 2017 Last revised: 15 Jan 2019

See all articles by Anna Abdulmanova

Anna Abdulmanova

Tulane 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: January 14, 2019

Abstract

This study examines the effect of investor attention on value loss and fraud discovery due to securities class action lawsuits. We determine that the investor attention is associated with the magnitude of value losses suffered at filing. We also find that the impact from filing of a lawsuit has no effect on the long-term value for firms with low levels of investor attention. Damage to corporate reputations appears to be due to greater investor attention is evident from poor performance and lower institutional ownership post-filing. Greater investor attention is also associated with the diffusion of information regarding fraud and its discovery. We conclude that investor attention affects both the rate and extent of information processed by market participants around litigation.

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 (January 14, 2019). Georgia Tech Scheller College of Business Research Paper No. 17-34. Available at SSRN: https://ssrn.com/abstract=3028224 or http://dx.doi.org/10.2139/ssrn.3028224

Anna Abdulmanova (Contact Author)

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
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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