Abstract
This paper investigates the reaction ofstock prices to enactment of the Private Securities LitigationReform Act of 1995 (PSLRA). Based on a sample of 489 high-technologyfirms, we find that the PSLRA was wealth-increasing, on average,and that the market reaction is more positive for firms at greatestrisk of being sued in a securities class action. However, wealso show that the PSLRA was less beneficial for firms likelyto be the subject of a meritorious lawsuit. Collectively, ourevidence implies that shareholders generally benefit from restrictionson private securities litigation, although these benefits aremitigated when other mechanisms for curbing fraudulent activityare inadequate.
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Johnson, M.F., Kasznik, R. & Nelson, K.K. Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995. Review of Accounting Studies 5, 217–233 (2000). https://doi.org/10.1023/A:1009612610389
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DOI: https://doi.org/10.1023/A:1009612610389