Securities Law Commons^™

The Supreme Court’S Impact On Securities Class Actions: An Empirical Assessment Of Tellabs, Adam C. Pritchard, Stephen Choi

Law & Economics Working Papers Archive: 2003-2009

Using a sample of securities fraud class actions filed between 2003 and 2007, we study the impact of a widely-followed Supreme Court decision from that period, Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007). This decision clarified the law with respect to one of the most hotly contested issues in securities litigation: pleading scienter. The Tellabs decision reversed a very lenient Seventh Circuit decision with respect to pleading scienter, but replaced it with a standard that is nonetheless relatively generous to plaintiffs. Looking at opinions resolving motions to dismiss decided before and after that decision, we …

Securities Class Actions Move North: A Doctrinal And Empirical Analysis Of Securities Class Actions In Canada, Adam C. Pritchard, Janis P. Sarra

Law & Economics Working Papers Archive: 2003-2009

A number of Canadian provinces recently have adopted legislation providing shareholders with a claim for secondary market fraud. Although the legislation has some similarities to the “fraud on the market” class action found in the United States, the laws have some important differences. This article compares securities class actions in Canada and the United States, highlighting the differences between the two regimes that are likely to have important strategic consequences for class action attorneys and issuers. The article also collects and analyzes data on the securities class actions that have been filed to date against Canadian issuers in both Canada …

London As Delaware?, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

Regulatory competition has long driven the path of corporate law in the federal system of the United States. Now, jurisdictional competition has spread to exchange listings. New York took an early lead in that competition in the 1990s, but has now been overtaken by London. Can London prevail in the competition for stock listings in the long term? This essay explores that question through the insights offered by Delaware’s dominance in the market for corporate listings. Delaware has prevailed by offering corporate directors a predictable body of that credibly shields directors from the vagaries of political backlash in times of …

Do Individual Investors Affect Share Price Accuracy? Some Preliminary Evidence, Alicia Davis Evans

Law & Economics Working Papers Archive: 2003-2009

A common belief is that individual investors are noise traders that distort stock prices. Because accurate share prices are important for economic functioning, the market effect of retail investors has significant regulatory implications. This paper, employing a new NYSE retail trading data set and the R2 metric of share price informedness, contributes to the debate by demonstrating that as the proportion of trading by individual investors increases, the R2 of firms decreases. Adherents of the R2 methodology hold that lower R2's imply more accurate stock prices. The results of an instrumental variable estimation suggest that this relationship is a causal …

Attorneys As Arbitrators, Stephen Choi, Jill Fisch, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

We study the role of attorneys as arbitrators in securities arbitration conducted by the National Association of Securities Dealers (NASD, n/k/a FINRA), using a dataset of 422 randomly selected arbitrators and their 6724 arbitration awards from 1992 to 2006. We find that arbitrators who also represent brokerage firms or brokers in other arbitrations award significantly less compensation to investor-claimants than other arbitrators. We find no significant effect for attorney-arbitrators who represent investors or both investors and brokerage firms. The relation between representing brokerage firms and arbitration awards remains significant even when we control for political outlook. We report that ideology …

China, Business Law, And Finance -- Accession To The World Trade Organization, Joseph Vining

Law & Economics Working Papers Archive: 2003-2009

China's entry into the world economy will affect not just how we act but how we think. It will affect especially what "business," "business law," and "business corporation" come to mean both in a transnational setting and in American law. The nature of American business law today still stands in the way of a wholly profit-maximizing approach to law or the world in general. But there is strong pressure, consistent with a general tendency in Western thought, to make business and corporate decision-making entirely manipulative and calculating and to eliminate the force of human value from it. This Youde Lecture …

The Investor Compensation Fund, Alicia Davis Evans

Law & Economics Working Papers Archive: 2003-2009

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation.

The interest in compensation, however, should be advanced by better means than are …

The Screening Effect Of The Private Securities Litigation Reform Act, Stephen Choi, Karen K. Nelson, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

Prior research shows that the PSLRA increased the significance of merit-related factors, such as the presence of an accounting restatement or insider selling, in determining the incidence and outcomes of securities fraud class actions. (Johnson, Nelson, and Pritchard, 2007). This result, however, is consistent with two possible hypotheses. First, the PSLRA may have reduced solely the incidence of non-meritorious litigation. Second, the PSLRA may have changed the definition of merit, effectively precluding claims that would have survived and produced a settlement pre-PSLRA. This paper tests these alternative hypotheses. We find that pre-PSLRA claims that settled for nuisance value would be …

The Irrational Auditor And Irrational Liability, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

This essay argues that less liability for auditors in certain areas might encourage more accurate and useful financial statements, or at least equally accurate statements at a lower cost. Audit quality is promoted by three incentives: reputation, regulation, and litigation. When we take reputation and regulation into account, exposing auditors to potentially massive liability may undermine the effectiveness of reputation and regulation, thereby diminishing integrity of audited financial statements. The relation of litigation to the other incentives that promote audit quality has become more important in light of the sea change that occurred in the regulation of the auditing profession …