Shareholders' Perception of the Securities Litigation Regime in the U.S.: Stock Price Impact of the Presidential Veto of the Private Securities Litigation Reform Bill of 1995

Ali, A and Kallapur, S (1998) Shareholders' Perception of the Securities Litigation Regime in the U.S.: Stock Price Impact of the Presidential Veto of the Private Securities Litigation Reform Bill of 1995. Working Paper. Social Science Research Network. (Unpublished)

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Abstract

On December 19, 1995, President Clinton vetoed the Private Securities Litigation Reform Bill because he disapproved of certain provisions in the bill, which restrict the ability of private litigants to sue for securities fraud. This study shows that the stock price reaction to the veto is positively correlated with proxies for probability of a firm being sued, namely, market model beta and membership in high technology industries. It further shows that the stock price reaction to the veto reverses when Congress overrides the veto. This evidence suggests that the shareholders of firms with high litigation risk approved of the veto. We consider several reasons for the stock price reaction to the veto and conclude the following: the shareholders' primary concern was that the restrictions to sue proposed in the bill would reduce the deterrence effect of securities litigation and weaken the financial disclosure system.

Affiliation: Indian School of Business
ISB Creiators:
ISB Creators
ORCiD
Kallapur, S
https://orcid.org/0000-0003-2920-6144
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Securities Litigation, Presidential Veto, Private Securities Litigation
Subjects: Business and Management
Depositing User: Veeramani R
Date Deposited: 07 Mar 2019 15:25
Last Modified: 07 Mar 2019 15:25
URI: http://eprints.exchange.isb.edu/id/eprint/685
Publisher URL: http://dx.doi.org/10.2139/ssrn.70849
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