ACCTG 502 | Session 6 | Institutional monitoring through shareholder litigation

ACCTG 502 | Session 6 | Institutional monitoring through shareholder litigation - 2010 C.S. Agnes Cheng, Henry He Huang, Yinghua Li, Gerald Lobo. Introduction: The study investigates whether institutional investors, when acting as lead plaintiffs in securities class action lawsuits, are effective monitors of corporate behavior. Using 1,811 lawsuits from 1996 to 2005, the authors find that cases with institutional lead plaintiffs are less likely to be dismissed, yield larger settlements, and lead to greater improvements in corporate governance (notably board independence) than cases led by individual plaintiffs. These results suggest that institutional investors use litigation as a credible disciplinary mechanism.