The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy

Authors

Matteo P. Arena, Marquette UniversityFollow
Brandon Julio, London Business School

Document Type

Article

Language

eng

Format of Original

25 p.

Publication Date

4-2015

Publisher

Cambridge University Press

Source Publication

Journal of Financial and Quantitative Analysis

Source ISSN

0022-1090

Abstract

The risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in anticipation of lawsuits and not a consequence of plaintiffs targeting firms with high cash levels. The market value of cash is significantly lower for firms exposed to litigation risk. Corporate investment decisions are also affected by litigation risk, as firms reduce capital expenditures in response. Our results are robust to endogeneity concerns and possible spurious temporal effects.

Comments

Accepted version. Journal of Financial and Quantitative Analysis, Vol. 50, No. 1-2 (April 2014): 251-275. DOI. © 2014 Cambridge University Press. Used with permission.

Recommended Citation

Arena, Matteo P. and Julio, Brandon, "The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy" (2015). Finance Faculty Research and Publications. 90.
https://epublications.marquette.edu/fin_fac/90