The Hidden Cost of Meritless Class Action Lawsuits

Close to 40 percent of all companies listed on major U.S. stock exchanges have been targeted by a securities class action lawsuit at least once between 1996 and 2017, according to the Stanford Securities Class Action Clearinghouse. These lawsuits are not only common but increasingly popular, with a record number of cases filed in the past two years. Given their prevalence, understanding the economic implications of the current securities litigation system is important.

Securities class action lawsuits can be socially beneficial if they deter wrongdoing, curb managerial rent extraction, and compensate injured shareholders. However, class actions have a widely discussed … Read more