In this article the authors analyze the common stock market capitalization of corporate defendants in Rule 10b-5 federal securities class action suits filed between July 1, 2018 and June 30, 2023 relative to the broader set of companies listed on US exchanges. Our primary findings are:
- The decile with the largest firms experienced the most Rule 10b-5 suits. The largest 10% of firms were 2.6 times as likely to be defendants in a Rule 10b-5 class action as the smallest 50% of firms and 4.4 times as likely as the smallest 10% of firms. This is despite the larger firms being able to invest more in the sorts of corporate controls that should reduce the potential for suits.
- In addition, the largest firms would be able to invest more in their defense, which could delay any settlement or judgment for plaintiffs. Consistent with that, we observe that suits against firms in the top decile that were filed between July 2018 and December 2020 are far more likely to remain active as of June 30, 2023 than suits against firms in the smallest deciles.
- Finally, we observe that, of the suits that are no longer active, suits against firms in the top decile have similar rates of settlement and dismissal as suits against firms in the smallest decile. This suggests that for those suits that are resolved within a few years of being filed, the likelihood of winning a dismissal does not increase with the size of the defendant firm.
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