Download this Paper Open PDF in Browser

Shareholder Initiated Class Action Lawsuits: Shareholder Wealth Effects and Industry Spillovers

44 Pages Posted: 20 Mar 2006 Last revised: 23 Nov 2012

Amar Gande

Southern Methodist University

Craig M. Lewis

Vanderbilt University - Finance

Date Written: August 1, 2009

Abstract

This paper documents significantly negative stock price reactions to shareholder initiated class action lawsuits. We find that shareholders partially anticipate these lawsuits based on lawsuit filings against other firms in the same industry and capitalize part of these losses prior to a lawsuit filing date. We show that the more likely a firm is to be sued, the larger is the partial anticipation effect (shareholder losses capitalized prior to a lawsuit filing date) and smaller is the filing date effect (shareholder losses measured on the lawsuit filing date). Our evidence suggests that previous research that typically focuses on the filing date effect understates the magnitude of shareholder losses, and such an understatement is greater for firms with a higher likelihood of being sued.

Keywords: Class Action Lawsuits, Industry Spillovers, Litigation, Partial Anticipation, Propensity to be Sued, Shareholder Wealth Effects

JEL Classification: G14, G21, G22, G23, G24

Suggested Citation

Gande, Amar and Lewis, Craig M., Shareholder Initiated Class Action Lawsuits: Shareholder Wealth Effects and Industry Spillovers (August 1, 2009). Journal of Financial and Quantitative Analysis (JFQA), Vol. 44, No. 4, pp. 823-850. Available at SSRN: https://ssrn.com/abstract=891028

Amar Gande (Contact Author)

Southern Methodist University ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States
2147681945 (Phone)
2147684099 (Fax)

Craig M. Lewis

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Paper statistics

Downloads
505
Rank
45,265
Abstract Views
3,171