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Securities class actions, corporate governance and managerial agency problems

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Author Info
Philip Strahan
Abstract

This paper provides support for the proposition that securities class actions help solve agency problems. Two key findings support this conclusion. First, firms that are more likely to suffer from agency problems are more likely to face class actions. Risky firms, large firms, young firms, low market-to-book firms and non-dividend paying firms as of the end of 1990 were more likely to face a class action filing during the January 1991 to March 1998 period. Second, the probability of CEO turnover increases dramatically after class action filings. The increase can not be explained by omitted firm-specific characteristics, financial distress, or the possibility that CEO turnover increases the likelihood that a lawyer will file a class action.

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Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9816.

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Date of creation: 1998
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Handle: RePEc:fip:fednrp:9816

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Keywords: Corporations - Finance;

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  13. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
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  16. Stewart C. Myers & Raghuram G. Rajan, 1995. "The Paradox of Liquidity," NBER Working Papers 5143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Schranz, Mary S, 1993. "Takeovers Improve Firm Performance: Evidence from the Banking Industry," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 299-326, April. [Downloadable!] (restricted)
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  19. Gilson, Stuart C & Vetsuypens, Michael R, 1993. " CEO Compensation in Financially Distressed Firms: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 48(2), pages 425-58, June. [Downloadable!] (restricted)
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  1. Michael S. Gibson, 1998. ""Big Bang" deregulation and Japanese corporate governance: a survey of the issues," International Finance Discussion Papers 624, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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