How Companies Can Protect Against Securities Class Action Lawsuits Using Risk Factor Disclosure

HKUST IEMS Thought Leadership Briefs No. 52

 

Securities class action lawsuits are arguably the most significant litigation risk for firms listed in the US, UK, Australia and Canada, with an average settlement of $3.4 billion USD in the US in the last decade. Despite managers’ intention to provide information to investors by discussing forward-looking information, investors often sue companies for providing overly optimistic forecasts when the outcome is negative.

Our research shows that managers perceive lower litigation risk in issuing forward-looking information when they disclose sufficiently detailed risk factor disclosures and invoke the safe harbor protection.

 

Allen Huang from HKUST has looked into the above pressing issues. He found out that firms that consider listing in the United States should provide sufficient risk factor disclosure to avoid becoming targets in securities class action lawsuits.

 

Find out more about their research and their policy recommendations in HKUST IEMS Thought Leadership Briefs No. 52.

Figure 1. Total Settlement Dollars. 2010-2019. (Dollars in Billions)
Figure 1. Total Settlement Dollars. 2010-2019. (Dollars in Billions)
Figure 2. Percentage of Companies Sued by Listing Category or Domicile — Core Federal Filings 2006-2020
Figure 2. Percentage of Companies Sued by Listing Category or Domicile — Core Federal Filings 2006-2020
Figure 3. Non-U.S. Filings by Location of Headquarters — Core Federal Filings
Figure 3. Non-U.S. Filings by Location of Headquarters — Core Federal Filings

About The Hong Kong University of Science and Technology
The Hong Kong University of Science and Technology (HKUST) (www.ust.hk) is a world-class research university that focuses on science, technology and business as well as humanities and social science.  HKUST offers an international campus, and a holistic and interdisciplinary pedagogy to nurture well-rounded graduates with global vision, a strong entrepreneurial spirit and innovative thinking.  HKUST attained the highest proportion of internationally excellent research work in the Research Assessment Exercise 2014 of Hong Kong’s University Grants Committee, and is ranked as the world’s best young university in Times Higher Education’s Young University Rankings 2019.  Its graduates were ranked 16th worldwide and top in Greater China in Global University Employability Survey 2018.

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