Markets and Monitors: The Impact of Competition and Experience on Attorneys' Fees in Securities Class Actions

Abstract

Setting compensation for plaintiffs' attorneys in securities class actions is a perennial problem traditionally addressed through ex post judicial monitoring. This paper examines empirically two aspects of this problem. The first involves attempts to introduce market mechanisms into fee setting, either through auctioning the lead counsel position or through competition to represent institutional lead plaintiffs under the Private Securities Litigation Reform Act. The second is the adequacy of existing monitoring mechanisms, particularly whether the participation of repeat players is correlated with attorneys' fee awards. The paper finds that lead counsel auctions and the participation of public pension funds as lead plaintiffs are correlated with lower fee requests and awards. There is, however, no significant correlation for another type of frequent institutional plaintiff, union pension funds. There is also some evidence that judicial experience with securities class actions and institutional objections to attorneys' fee requests are negatively correlated with fee awards.