Shareholders' Perception of the Securities Litigation Regime in the U.S.: Stock Price Impact of the Presidential Veto of the Private Securities Litigation Reform Bill of 1995

29 Pages Posted: 26 Mar 1998

See all articles by Ashiq Ali

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Sanjay Kallapur

Indian School of Business

Date Written: February 1998

Abstract

On December 19, 1995, President Clinton vetoed the Private Securities Litigation Reform Bill because he disapproved of certain provisions in the bill, which restrict the ability of private litigants to sue for securities fraud. This study shows that the stock price reaction to the veto is positively correlated with proxies for probability of a firm being sued, namely, market model beta and membership in high technology industries. It further shows that the stock price reaction to the veto reverses when Congress overrides the veto. This evidence suggests that the shareholders of firms with high litigation risk approved of the veto. We consider several reasons for the stock price reaction to the veto and conclude the following: the shareholders' primary concern was that the restrictions to sue proposed in the bill would reduce the deterrence effect of securities litigation and weaken the financial disclosure system.

JEL Classification: G14, G38, K22, M41

Suggested Citation

Ali, Ashiq and Kallapur, Sanjay, Shareholders' Perception of the Securities Litigation Regime in the U.S.: Stock Price Impact of the Presidential Veto of the Private Securities Litigation Reform Bill of 1995 (February 1998). Available at SSRN: https://ssrn.com/abstract=70849 or http://dx.doi.org/10.2139/ssrn.70849

Ashiq Ali (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://https://jindal.utdallas.edu/faculty/ashiq-ali

Sanjay Kallapur

Indian School of Business ( email )

ISB Campus, Gachibowli
Hyderabad, 500 032
India
+91 40 2318 7138 (Phone)

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