In a new paper entitled, Institutional Monitoring Through Shareholder Litigation, a group of professors studied the effectiveness of institutional investors acting as lead plaintiffs in securities class actions. As noted in this blog by the authors, the study found that securities class actions with institutional investors as lead plaintiffs “are less likely to be dismissed and have larger monetary settlements than class actions with individual lead plaintiffs.” Moreover, corporate defendants make greater improvements to their board independence with institutions as lead plaintiffs than individual lead plaintiffs.
The study looked at a sample of 1,1811 securities class actions filed between 1996 and 2005 and found that an institutional investor is more likely to get involve and serve as a lead plaintiff when there is a high degree of success in the case, a large potential damage and the corporate defendant is important to the institution. Moreover, “institutional investors are more likely to serve as the lead plaintiff when the lawsuit involves an accounting-related litigation, has an accounting firm as the co-defendant, has a longer class period, has a negative market reaction to the revelation event, and has a larger potential investor loss.”
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