Are governance improvements by U.S. companies leading to less securities litigation?
The number of new securities class-action lawsuits this year is on pace for a 31 percent decline from 2005, according to a mid-year report by Stanford Law School and Cornerstone Research.
"While we lack the data necessary to determine the precise cause of the slowdown, the most intriguing hypothesis is that extensive and expensive corporate efforts to improve governance and accounting have reduced plaintiffs' ability to allege fraud," Stanford Law Professor Joseph Grundfest, who is a former commissioner of the Securities and Exchange Commission, said in a press release on the report.
As of June 30, investors had filed 61 "traditional" securities class actions (which excludes IPO, analyst, mutual fund, and derivative cases), the Stanford-Cornerstone report stated. At that pace, 123 cases will be brought this year, down from 179 securities lawsuits in 2005 and 213 cases in 2004. That 2006 total would be 36 percent less than the historical average of 194 cases per year from 1996 to 2005, according to the report.
Most U.S. companies have significantly improved their governance practices to comply with the Sarbanes-Oxley Act of 2002 and the stricter New York Stock Exchange and Nasdaq listing standards.
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