Motions for Lead Plaintiff in Securities Class Actions

Abstract

Using a data set of securities class actions filed from 2003 to 2005, this study assesses the effect of the lead plaintiff presumption enacted as part of the Private Securities Litigation Reform Act of 1995 on agency costs of lead counsel for the class and class members. Examining the pretrial motions for lead plaintiff for each class action, the study reports evidence that characteristics of the selected lead plaintiff, including the amount of losses suffered, the presence of institutional investors, and the presence of institutions that are frequent movants for lead plaintiff status, are negatively correlated with attorney agency costs. The amount of competition in the lead plaintiff selection process and the formation of some (but not all) groups of lead plaintiffs are also negatively correlated with agency costs.