The Effect of Investor Attention on Fraud Discovery and Value Loss in Securities Class Action Litigation

This study examines the effect of investor attention on value loss and fraud discovery due to securities class action lawsuits. We determine that the investor attention is associated with the magnitude of value losses suffered at filing. We also find that the impact from filing of a lawsuit has no effect on the long-term value for firms with low levels of investor attention. Damage to corporate reputations appears to be due to greater investor attention is evident from poor performance and lower institutional ownership post-filing. Greater investor attention is also associated with the diffusion of information regarding fraud and its discovery. We conclude that investor attention affects both the rate and extent of information processed by market participants around litigation.