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How do analysts react to shareholder class action lawsuits?

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  • Hickox, Chet
  • Lin, Bing-Xuan
  • Oppenheimer, Henry
  • Zhang, Ting

Abstract

This paper examines security analyst's earnings estimates and recommendations during the period around shareholder class action lawsuits. We find that analysts respond rapidly to the class action lawsuits. The magnitude of the forecast revisions is greater for smaller firms and for firms with large unexpected earnings surprises (SUE), high beta, and more negative three-day cumulative abnormal returns around the filing date. The speed of analyst response is directly related to firm size, SUE, beta, and share turnover, and is inversely related to the magnitude of the cumulative abnormal return for the three days around filing date. Finally, our results show that analysts utilize an industry spillover effect when estimating earnings for other related firms in the same industry.

Suggested Citation

  • Hickox, Chet & Lin, Bing-Xuan & Oppenheimer, Henry & Zhang, Ting, 2016. "How do analysts react to shareholder class action lawsuits?," Journal of Economics and Business, Elsevier, vol. 85(C), pages 29-48.
    • Handle: RePEc:eee:jebusi:v:85:y:2016:i:c:p:29-48
    DOI: 10.1016/j.jeconbus.2016.01.002
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    Cited by:

    1. BC, Bishal & Esfahani, Sharif, 2020. "The role of debt contracts in analyst earnings forecasts," Journal of Economics and Business, Elsevier, vol. 111(C).
    2. Salma Damak & Hend Guermazi & Adel Beldi, 2022. "The Stock Market Reaction to Securities Class Action Filings," International Journal of Economics and Financial Issues, Econjournals, vol. 12(6), pages 127-132, November.
    3. Omer Unsal & M. Kabir Hassan, 2020. "Employee lawsuits and capital structure," Review of Managerial Science, Springer, vol. 14(3), pages 663-704, June.

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