The merits of securities litigation and corporate reputation

• 成果类型: Article
• 署名作者: Donelson, Dain C.; Kartapanis, Antonis; Yust, Christopher G.
• 署名单位: University of Iowa; Texas A&M University System; Texas A&M University College Station; University of Iowa
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12907
• 发表日期: 2024
• 页码: 424-458
• 关键词: shareholder litigation; information-content; officers insurance; company reputation; empirical-analysis; disclosure; firm; matter; DIRECTORS; IMPACT

摘要

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.