Can Long-Term Institutional Owners Improve Market Efficiency in Parsing Complex Legal Disputes?

67 Pages Posted: 15 Feb 2020 Last revised: 16 Apr 2020

See all articles by Paul Borochin

Paul Borochin

University of Miami - Department of Finance

Xiaoqiong Wang

Indiana University Kokomo

Siqi Wei

David Nazarian College of Business and Economics, California State University, Northridge

Date Written: January 15, 2020

Abstract

Long-horizon institutional investors can help mitigate information asymmetries around securities class action (SCA) lawsuits. We find that the machine readability of SCA complaint filings can predict the outcome and duration of class actions. Long-term institutional investor ownership leads to a more positive post-SCA announcement price reaction and increases the volatility ratio of prices as a measure of price informativeness. Furthermore, there is a significant interaction effect between long-term institutional ownership and SCA complexity on price informativeness consistent with a superior information processing ability about complex corporate events affecting portfolio firms.

Keywords: Institutional ownership, Securities class actions, Market efficiency, Natural language processing

JEL Classification: G30, G14, G32, K41

Suggested Citation

Borochin, Paul and Wang, Xiaoqiong and Wei, Siqi, Can Long-Term Institutional Owners Improve Market Efficiency in Parsing Complex Legal Disputes? (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=3519677 or http://dx.doi.org/10.2139/ssrn.3519677

Paul Borochin (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Xiaoqiong Wang

Indiana University Kokomo ( email )

2300 South Washington Street
P.O. Box 9003
Kokomo, IN 46904-9003
United States

Siqi Wei

David Nazarian College of Business and Economics, California State University, Northridge ( email )

18111 Nordhoff Street
Northridge, CA 91330
United States

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