Shareholder Class Action Suits and the Bond Market

58 Pages Posted: 12 May 2011

See all articles by Mary Brooke Billings

Mary Brooke Billings

New York University

April Klein

New York University (NYU) - Department of Accounting

Emanuel Zur

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 11, 2011

Abstract

Using a sample of 2,241 shareholder lawsuits from 1996 through 2008, we identify 579 lawsuit firms (26%) with publicly traded bonds. We find a mean [median] excess bond return of -2.59% [-1.83%], and a significant increase in trading volume for these bonds around the class action filing date. The excess bond returns are more negative for more risky bonds, when the ex ante merits of the lawsuit are higher, when a debt holder is a co-plaintiff, and when the complaint has a debt allegation. We also examine the relationship between bondholder and shareholder returns. We find no evidence of an expropriation of wealth between claimants. We do find that the bond market incorporates the negative news leading up to and encompassing the filing date more quickly than the stock market. We attribute this result to the bond market being traded primarily by institutional investors.

Keywords: litigation, bond pricing, bond trading

JEL Classification: M41, K22, G14

Suggested Citation

Billings, Mary Brooke and Klein, April and Zur, Emanuel, Shareholder Class Action Suits and the Bond Market (May 11, 2011). Available at SSRN: https://ssrn.com/abstract=1838582 or http://dx.doi.org/10.2139/ssrn.1838582

Mary Brooke Billings (Contact Author)

New York University ( email )

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(212) 998-0097 (Phone)

April Klein

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Emanuel Zur

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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