Quantitative Financial Risk Management: Theory and Practice

CHAPTER 15

Accounting Information in the Prediction of Securities Class Actions

Vassiliki Balla

INTRODUCTION

After the tenth anniversary of the passage of the Sarbanes-Oxley Act, there has been an increase in allegations related to SOX reporting requirements. According to the “2011 Review and Analysis” of Cornerstone Research, there has been an increase in Class Actions (CAs) in 2011 contrary to 2010, originating from accounting misstatements and financial restatements. It is worth noting that CAs, which are linked to accounting, take longer to resolve and are less likely to result in dismissal than settlement. However, accounting cases result in higher settlement outcomes. The year 2011 was characterized by increased stock market volatility, creating a dynamic environment for securities class action litigation. In recent years, there has been an increase in the number and value of securities class actions (SCAs), attracting the attention of various stakeholders such as investors, managers, policy makers, lawyers, and so on. Over the years numerous class action lawsuits have been in the spotlight, most of them involving securities fraud. It is worth noting that even in regular securities class actions that received less media attention in recent years, the compensation exceeded $500 million. By and large, even median class action cases may reach settlements of millions of dollars (Buckberg et al. 2003).

Importance of the Study

In recent years, there has been an increase in securities ...