Journal article
The merits of securities litigation and corporate reputation
Contemporary accounting research, Vol.41(1), pp.424-458
Spring 2024
DOI: 10.1111/1911-3846.12907
Appears in UI Libraries Support Open Access
Abstract
We explore how securities litigation affects corporate reputation. Experts remain concerned that nonmeritorious securities class actions—those that will be dismissed or settled for nuisance amounts—cause reputational damage. Although several prior studies show reputational costs for nonmeritorious cases, they generally use indirect measures based on returns or total market losses, which are mechanically associated with securities litigation elements. In contrast, we use a relatively direct reputation measure from Fortune 's “Most Admired Companies” list. We find significant reputational damage after meritorious litigation, with the strongest cases having the largest effects. However, we find no evidence of reputational damage after nonmeritorious litigation. We also find that Fortune 's reputational damage measure is associated with more negative returns around the litigation filing date. We show possible mechanisms for our results, as initial legal filings contain information allowing market participants to assess case merits. Our results imply that reputational damage is primarily due to fraud, which securities litigation helps reveal to the market, rather than litigation itself. Thus, reputational damage is not an issue in over 70% of securities class actions due to the high frequency of nonmeritorious cases. This article is protected by copyright. All rights reserved.
Details
- Title: Subtitle
- The merits of securities litigation and corporate reputation
- Creators
- Dain C. Donelson - University of IowaAntonis Kartapanis - Texas A&M UniversityChristopher G. Yust - Texas A&M University
- Resource Type
- Journal article
- Publication Details
- Contemporary accounting research, Vol.41(1), pp.424-458
- DOI
- 10.1111/1911-3846.12907
- ISSN
- 0823-9150
- eISSN
- 1911-3846
- Publisher
- Wiley
- Language
- English; French
- Electronic publication date
- 09/20/2023
- Date published season
- Spring 2024
- Date published
- 2024
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984472620502771
Metrics
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