Do Institutional Investors Value the 10b-5 Private Right of Action? Evidence from Investor Trading Behavior Following Morrison v. National Australia Bank Ltd.

Abstract

In Morrison v. National Australia Bank (2010), the U.S. Supreme Court limited investors’ ability to bring private 10b-5 securities fraud actions to cases where the securities at issue were purchased on a United States stock exchange or were otherwise purchased in the U.S. Because many foreign firms’ securities trade simultaneously on non-U.S. venues and on U.S. exchanges, institutional investors claimed after Morrison that they would look to such firms’ U.S-traded securities to preserve their rights under 10b-5. This article tests this prediction using proprietary trading data from 378 institutional investors. The analysis reveals no evidence that investors reallocated trades in cross-listed issuers to the U.S., nor did they reallocate foreign trading to cross-listed issuers that are now clearly subject to 10b-5 securities suits. This persistence in trading appears across both money managers and pension plan sponsors, notwithstanding sponsors’ more vocal criticism of Morrison and their prominence in 10b-5 litigation.The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2537125