Securities Litigation Risk for Foreign Companies Listed in the U.S.

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Securities Litigation Risk for Foreign Companies Listed in the U.S.

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Title: Securities Litigation Risk for Foreign Companies Listed in the U.S.
Author: Cheng, Beiting; Srinivasan, Suraj; Yu, Gwen

Note: Order does not necessarily reflect citation order of authors.

Citation: Cheng, Beiting, Suraj Srinivasan, and Gwen Yu. "Securities Litigation Risk for Foreign Companies Listed in the U.S." Harvard Business School Working Paper, No. 13–036, October 2012.
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Abstract: We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S.
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:10212559
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