Corporate Governance

As reported in the Investor Advocate a recent academic study published in the November/December issue of Financial Analysts Journal found that securities fraud class action lawsuits are effective at instigating corporate overhauls and that investors benefit from the resulting reorganized management and improved productivity.  

The study titled Misdeeds Matter: Long-Term Stock Price Performance after filing of Class Action Lawsuits was conducted by Robert Bauer a finance professor and Robin Braun, a PhD candidate at Maastricht University School of Business and Economics, The Netherlands.  The pair examined 650 securities class actions in the United States to determine their impact on shareholder wealth at the defendant corporations. 

Their findings may encourage investors to bring class actions to redress misconduct and enforce securities laws ?Our analysis shows that investors should not be deterred from resorting to lawsuits that allege violations of the duty of loyalty?? rather ?institutional investors initiating or joining a class action lawsuit can, to some degree, expect substantial reorganizations in the sued company, which can result in medium-to long-term outperformance.?