The Role of Stock Prices in Litigation

Abstract

Stock prices play an important role in litigation but their role depends on the type of litigation and the relevance of assumptions underlying stock price theory in specific cases. This paper examines the role of stock prices in two types of litigation; one involves fraudulent statements which affect prices, the other with management decisions which affect prices but where no fraud is involved. It suggests that while market prices are useful in fraud cases and are often appropriate for assessing monetary damages, they might not always be so. It also finds that market prices are frequently not appropriate for judging governance cases.