Security Class Actions: Leading Indicators and Covariates

25 Pages Posted: 22 Apr 2020

See all articles by Joseph Burke

Joseph Burke

Watchdog Research; Audit Analytics

Joseph Yarbrough

Watchdog Research

Date Written: March 27, 2020

Abstract

This report provides contingency tables (crosstab) analysis of security class actions (SCAs) and flags from Corporate Watchdog Reports. Watchdog Research assigns red and yellow flags to disclosures made by publicly traded firms according to their proprietary classification system. We find the following flags to be leading indicators of security class actions: red flags for financial revisions and CFO changes; and yellow flags for the Beneish M-Score, cybersecurity, and non-audit fees. We also find that a security class action in one year increases the probability of another security class action in the following year, i.e. security class actions are serially correlated over time. Additionally, we find that several flags are correlated with security class actions. The presence of a correlated flag increases the probability that a security class action will occur in the same calendar year it was awarded. The analysis is based on a panel data set of NYSE and NASDAQ companies from 2014 to 2018.

Keywords: Financial Economics, Accounting, Auditing, Red Flags, Security Class Actions

JEL Classification: G11, G12, M41, M42

Suggested Citation

Burke, Joseph and Yarbrough, Joseph, Security Class Actions: Leading Indicators and Covariates (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3562785 or http://dx.doi.org/10.2139/ssrn.3562785

Joseph Burke (Contact Author)

Watchdog Research ( email )

5072 Annunciation Cir., Suite 202
Ave Maria, FL 34142
United States
855-820-6272 (Phone)

HOME PAGE: http://www.watchdogresearch.com/

Audit Analytics ( email )

9 W. Main St
Suite 2F
Sutton, MA 01590
United States

HOME PAGE: http://www.auditanalytics.com

Joseph Yarbrough

Watchdog Research ( email )

5072 Annunciation Cir., Suite 202
Ave Maria, FL 34142
United States
2395031138 (Phone)

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