Shareholder Class Action Suits and the Bond Market
58 Pages Posted: 12 May 2011
There are 2 versions of this paper
Shareholder Class Action Suits and the Bond Market
Shareholder Class Action Suits and the Bond Market
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: Suggested Citation
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