The Effect of Securities Class Action Lawsuits on Mergers and Acquisitions

Abstract

This paper investigates whether shareholder class action litigation affects the takeover candidacy, premium, and completion rate of mergers and acquisitions involving defendant target firms. We use a comprehensive data set of publicly traded U.S. firms that became the targets of takeover bids between 1998 and 2016 and find that firms subject to shareholder class action lawsuits within the previous two years are more likely to be targeted for acquisition while commanding a significantly higher premium. Firms that face such litigation after a takeover announcement experience a significant decrease in takeover completion.

Keywords: Securities Class Action Litigation, Mergers and Acquisitions, Takeovers, Takeover Likelihood

JEL Classification: G34, K22