Stock Price Response to News of  Securities Fraud Litigation: 
Market Efficiency and the Slow Diffusion of Costly Information

Griffin, Paul A.; Grundfest, Joseph A.; Perino, Michael A.

doi:10.2139/ssrn.251766

Cited by 23 publications

(15 citation statements)

References 45 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Although Romano (1991) finds little evidence of significant price reaction to lawsuits' initiation (À0.41%), Bhagat et al (1994Bhagat et al ( , 1998) report a significant negative response to the announcement of various litigation filings. Furthermore, Francis et al (1994) document a 17.2% price decline around corrective disclosures that prompt litigation and, consistent with this finding, others show that investors largely anticipate impending suits and the resulting losses (Griffin et al, 2000;Gande and Lewis, 2007). Plaintiffs' decision to litigate, however, is based on estimated damages, which, in turn, depend on stock price movements: firms with better performance prior to a corrective disclosure and less negative reaction to own (or industry-peers') disclosures are less likely to be sued (Francis et al, 1994;Jones and Weingram, 1996;Gande and Lewis, 2007).…”

Section: The Determinants Of Shareholder Litigation and Its Effect Onmentioning

confidence: 54%

“…Table 2 provides summary statistics of the frequency and timing of these events. The typical sequence is particularly important when interpreting the market reaction to various news, given that, in an efficient market, investors' reaction to a particular event should be affected by the history of events up to that point, as well as investors' expectations of future events (Griffin et al, 2000). After ordering events chronologically, firm-specific event date ranks may vary between 1 and 8, with lower ranks indicating earlier events.…”

Section: The Frequency and Evolution Of Backdating Newsmentioning

confidence: 99%

See 1 more Smart Citation

The impact of the options backdating scandal on shareholders

Bernile

Jarrell

2009

Journal of Accounting and Economics

109

View full text Add to dashboard Cite

a b s t r a c tThe revelation that scores of firms engaged in the illegal manipulation of stock options' grant dates (i.e. ''backdating'') captured much public attention. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns. Furthermore, shareholders' losses are directly related to firms' likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications. And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced and relatively many firms become takeover targets.

show abstract

Section: The Determinants Of Shareholder Litigation and Its Effect Onmentioning

confidence: 54%

Section: The Frequency and Evolution Of Backdating Newsmentioning

confidence: 99%

The impact of the options backdating scandal on shareholders

Bernile

Jarrell

2009

Journal of Accounting and Economics

109

View full text Add to dashboard Cite

show abstract

“…34 Given a corrective disclosure, short interest traders may further increase their positions in anticipation of a class action filing (possibly with knowledge that a filing is forthcoming) and information about the likely average decline in stock prices following a class action filing (e.g. Griffin et al, 2000). Our data provide only weak support for this view, and the differences are small.…”

Section: Insider Transactions and Short Interestmentioning

confidence: 76%

When does insider selling support a “strong inference” of fraud?

Griffin

Grundfest

2002

Asia-Pacific Journal of Accounting & Economics

Self Cite

View full text Add to dashboard Cite

“…Using data from lawsuits, Karpoff and Lott (1998) find that press coverage of punitive lawsuits corresponds to statistically significant decreases in the values of the defendant companies, indicating that punitive lawsuits are important to the defendants. Griffin et al (2000) document a statistically significant negative short-term price response to the litigation announcement as well as a negative response that persists for several weeks subsequent to the litigation announcement. Johnson et al (2001) provide direct evidence on the relation between legal environment and the voluntary disclosure of good news in high-technology industries.…”

Section: Firm Litigationmentioning

confidence: 85%

Audit Qualification, Firm Litigation, and Financial Information: an Empirical Analysis in Greece

Spathis¹

2003

Int J Auditing

View full text Add to dashboard Cite

In this study, we test the extent to which combinations of financial and non-financial information can be used to enhance the ability to discriminate between the choices of a qualified or unqualified (clean) audit report. Several models have been developed to explain qualifications in audit reports. The general consensus of these models has been that financial and non-financial factors dominate the audit opinion decision. In the USA, the Statement of Auditing Standards (SAS) No. 59 provides guidance for auditors to provide more critical evaluations to identify the possibility of qualifications problems. It identifies the conditions that an auditor should consider in evaluating going-concern status. These conditions include financial problems and operating problems. The standards also provide guidance on two other types of information, negative trends (operating losses) and other indicators, including internal matters, e.g., losses, and external matters (legal proceedings). For the most part, prior studies have not used any other qualitative variable(s) as indicators when developing audit opinion models. These qualitative indicators of potential solvency problems indicate year's losses and bad news characteristics, as firm litigation. TheIn this study, we test the extent to which combinations of financial and non-financial information can be used to enhance the ability to discriminate between the choices of a qualified or unqualified (clean) audit report. We examined the financial statements, the opinions of the auditors, and the notes to financial statements for companies that received a qualified audit report and for those that received an unqualified audit report. The data are taken from a sample of 100 Greek companies. Logistic and OLS regression models were estimated to assess the effect of firm litigation and financial information on audit qualification opinion. The qualification decision is associated by financial information such as financial distress and by non-financial information such as firm litigation. The model developed is accurate in classifying the total sample correctly with rate 78%. This study has implications for internal and external auditors and company decision makers.importance of these other qualitative indicators (firm litigation) in the auditor's decision has not been tested.The objective of the study was to develop a model based on financial information and other indicators, such as firm litigation, to explain qualifications in audit reports of Greek companies. The model will provide information on the likelihood of a company's receiving a qualification given its financial data and firm litigation data. This kind of model can serve as a decision aid for auditors when predicting what opinion other auditors would issue in similar circumstances, when evaluating potential clients, in determining the scope of an audit for existing clients, in peer reviews, to control quality within firms, and as a defence in lawsuits.Univariate tests (t-tests and chi-squared tests) and logistic and OLS ...

show abstract

Stock Price Response to News of Securities Fraud Litigation: Market Efficiency and the Slow Diffusion of Costly Information

Cited by 23 publications

References 45 publications

The impact of the options backdating scandal on shareholders

The impact of the options backdating scandal on shareholders

When does insider selling support a “strong inference” of fraud?

Audit Qualification, Firm Litigation, and Financial Information: an Empirical Analysis in Greece

Contact Info

Product

Resources

About