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Table 1. Securities Fraud Class Actions
Year filed and outcome of 331 securities fraud class actions. Actions classified as settled or dismissed
based on their status as of January 2009.
Outcome
Year Filed Dismissed Settled Total
No.
No.
No.
1996
4
3
7
1997
8
26
34
1998
13
25
38
1999
24
29
53
2000
20
26
46
2001
19
22
41
2002
31
47
78
2003
21
13
34
Total
140
191
331
1
2
Table 2. Director-Level Variables
Variable
Observations (N)
Outside
Inside
Directors Directors
Mean
Mean
2344
795
CEOs
Non-CEO
Insiders
Mean
Mean
N
323
472 3139
Involvement
Member Audit Committee (0/1)
0.478
0.063
0.015
0.095
3139
Outcome
Departed (0/1)
0.427
0.566
0.539
0.585
3139
Demographics
Age (Years)
Board Tenure (Years)
Voting Share (%)
59.062
6.535
0.621
53.331 52.409
9.019 8.885
3.106 4.263
53.962 3139
9.110 3139
2.314 3139
Inside directors are defined as directors that are linked to the firm. Linked directors include current and
former employees of the firm. Outside directors include all other board members. Individuals classified
as CEOs held that position as of the last meeting before the action was filed. Member Audit Committee
indicates that the director served on the audit committee at the time the action was filed. Departed indicates
that the director did not serve on the board through T=4, the fourth annual meeting after the suit is filed.
Age is the age of the director as reported in the last proxy prior to the date the action was filed. Board
Tenure is the length of a director’s board service, in years, as of the last proxy before the action is filed.
Voting Share is the percentage of equity shares controlled by the director.
3
Table 3. Firm-Level Variables
Sample means for firm-level variables by status of the action. Actions classified as settled or dismissed
based their status as of January 2009.
Variable
Number of Actions
Settlement Amount (million $)
Settlement Amount as % of Total Assets
Total Assets (billion $)
Allegations
Restatement (0/1)
Other GAAP (0/1)
SEC Involvement (0/1)
Ownership Structure
Institutional Holdings (%)
Outside Blockholdings (%)
Board Structure
Board Seats
Insider Seats
Outsider Seats
Performance and Market Reaction
Two-Year Firm Performance
Abnormal Returns ECP [-2,+2]
P-value: Difference
in Sample Means
Dismissed Settled
All t-test
Mann–
Actions Actions Actions
Whitney
140
191
331
26.432
90.040
2.870
14.663
19.641
0.207
0.428
0.136
0.386
0.179
0.309
0.576
0.340
0.236
0.495
0.272
0.000
0.001
0.001
0.000
0.000
0.001
64.690
12.859
59.998
14.728
61.957
13.938
0.043
0.213
0.019
0.148
9.614
2.436
7.179
9.387
2.377
7.010
9.483
2.402
7.082
0.518
0.693
0.624
0.283
0.442
0.283
0.026
-0.230
-0.258
-0.245
-0.138
-0.238
0.003
0.542
0.000
0.354
P-values are for a two-tailed test for differences in sample means between dismissed and settled actions.
Settlement Amount is the mean dollar amount of settlements in the 191 actions where settlement data is
available. Total Assets are the total assets of the firm at the end of the fiscal year prior to the date that the
action was filed. Restatement indicates that the action concerns a restatement. Other GAAP indicates that
the action involves a technical violation of GAAP accounting other than a restatement. SEC Involvement
denotes the presence of a concurrent SEC enforcement action. Institutional Holdings is the proportion of
a firm’s equity held by institutional investors. Outside Blockholdings is the percentage of the firm’s shares
held by 5% outside blockholders. Board Seats is the total number of directors elected or continuing to serve
on the board as of the annual meeting immediately preceding the date the action was filed. Insider Seats
and Outsider Seats are the number of inside and outside directors elected or continuing to serve on the
board as of the annual meeting preceding the date the action was filed. Two-Year Firm Performance is the
cumulative abnormal return of equity net of the return on the CRSP value-weighted index in the two years
ending in the month the action was filed. Abnormal Returns ECP [-2,+2] are the abnormal returns net of
the CRSP value-weighted index in a five-day window centered on the date of the end of the class period.
4
Table 4. Outside and Inside Director Retention Rates
Panel A: Outside Directors
Dismissed Actions
Settled Actions
p-value
Year
Number Retention
Number Retention
Directors
Rate
Directors
Rate
0
1005
100.00
1339
100.00
1
892
88.76
1118
83.50
0.000
2
773
76.92
949
70.87
0.001
3
678
67.46
825
61.61
0.003
4
613
61.00
729
54.44
0.001
Panel B: Inside Directors
Dismissed Actions
Settled Actions
p-value
Year Number of Retention Number of Retention
Directors
Rate
Directors
Rate
0
341
100.00
454
100.00
1
289
84.75
318
70.04
0.000
2
226
66.28
246
54.19
0.001
3
199
58.36
206
45.37
0.000
4
172
50.44
173
38.11
0.001
Panel C: CEOs
Dismissed Actions
Settled Actions
p-value
Year
Number Retention
Number Retention
Rate
Rate
0
135
100.00
188
100.00
1
118
87.41
128
68.09
0.000
2
99
73.33
104
55.32
0.001
3
89
65.93
85
45.21
0.000
4
75
55.56
74
39.36
0.004
Reported p-values of two-sided tests for differences in retention rates for outside directors between dismissed
and settled actions. N at T=0 is the number of directors of a given type elected to or continuing to serve
on the board at the annual meeting immediately preceding the date the action was filed. N at T=1 through
T=4 is the number of those directors that continue to serve on the board. Retention rate is defined as the
proportion of directors seated on the board of the firm as of the annual meeting immediately preceding the
filing of the action that continue to serve on the board at year T.
5
Table 5. Outside Director Turnover Probability
[1]
Director characteristics:
Age 61-65 (0/1) +
Age 66-70 (0/1) +
Age >70 (0/1) +
Log(Board Tenure)
Voting Share (%)
Member Audit Committee (0/1) +
Firm characteristics:
Log(Total Assets)
Firm Performance
Proportion of Outside Directors
Case characteristics:
Restatement of financials (0/1) +
Other GAAP (0/1) +
Suit Settled (0/1) +
Settlement amount in Q4 (0/1) +
Scaled settlement in Q4 (0/1) +
[2]
[3]
[4]
-0.013
(0.027)
0.268
(0.030)***
0.423
(0.032)***
-0.027
(0.014)**
0.003
(0.003)
-0.055
(0.021)**
-0.014
-0.015
-0.011
(0.027)
(0.027)
(0.027)
0.269
0.268
0.270
(0.030)*** (0.030)*** (0.030)***
0.423
0.423
0.425
(0.032)*** (0.032)*** (0.032)***
-0.027
-0.025
-0.026
(0.014)**
(0.014)*
(0.014)*
0.003
0.003
0.003
(0.003)
(0.003)
(0.003)
-0.055
-0.056
-0.055
(0.021)*** (0.021)*** (0.021)***
0.006
(0.006)
-0.038
(0.015)**
0.155
(0.094)
0.006
(0.006)
-0.034
(0.015)**
0.153
(0.094)
0.002
(0.007)
-0.038
(0.015)**
0.158
(0.095)*
0.012
(0.007)*
-0.036
(0.015)**
0.150
(0.095)
0.058
(0.028)**
0.005
(0.025)
0.043
(0.028)
-0.001
(0.026)
0.051
(0.023)**
0.043
(0.029)
-0.005
(0.026)
0.044
(0.028)
0.003
(0.025)
0.064
(0.031)**
0.137
(0.036)***
Number of Observations
2344
2344
2344
2344
Pseudo-R2
0.071
0.072
0.072
0.075
+ marginal effect for discrete change of dummy variable from 0 to 1
Estimates of the marginal effect on outside directors turnover probability between T=0 and T=4 from a
binomial probit model. Outside directors include all directors that are not employees or former employees
of the firm as of T=0. Dependent variable is 1 if the director leaves the board by T=4, 0 if the director
remains on the board at T=4. Positive marginal effects indicate that an increase in the independent variable
increases the probability of departure. Cluster-robust standard errors in parentheses. *** significant at the
1 percent, ** 5 percent and * 10 percent levels.
6
Table 6. Inside Director Turnover Probability
Director characteristics:
Age 61-65 (0/1) +
Age 66-70 (0/1) +
Age >70 (0/1) +
Log(Board Tenure)
Voting Share (%)
CEO (0/1) +
Firm characteristics:
Log(Total Assets)
Firm Performance
Proportion of Outside Directors
Case characteristics:
Restatement of financials (0/1) +
Other GAAP (0/1) +
Suit Settled (0/1) +
Settlement amount in Q4 (0/1) +
Scaled settlement in Q4 (0/1) +
[1]
[2]
[3]
[4]
0.007
(0.058)
-0.066
(0.087)
0.152
(0.093)
-0.025
(0.024)
-0.014
(0.003)***
-0.034
(0.042)
0.004
(0.058)
-0.070
(0.088)
0.158
(0.093)*
-0.023
(0.024)
-0.014
(0.003)***
-0.036
(0.042)
0.019
(0.058)
-0.069
(0.089)
0.171
(0.090)*
-0.024
(0.024)
-0.014
(0.003)***
-0.037
(0.043)
0.008
(0.058)
-0.058
(0.089)
0.169
(0.092)*
-0.031
(0.024)
-0.014
(0.003)***
-0.037
(0.043)
0.004
(0.012)
-0.081
(0.024)***
0.166
(0.145)
0.005
(0.012)
-0.074
(0.024)***
0.168
(0.145)
-0.007
(0.012)
-0.076
(0.024)***
0.164
(0.145)
0.015
(0.012)
-0.077
(0.024)***
0.158
(0.146)
0.129
(0.045)***
0.107
(0.043)**
0.109
(0.046)**
0.098
(0.044)**
0.080
(0.039)**
0.094
(0.047)**
0.074
(0.045)
0.113
(0.046)**
0.109
(0.044)**
0.211
(0.052)***
0.228
(0.050)***
Number of Observations
795
795
795
795
Pseudo-R2
0.078
0.082
0.091
0.095
+ marginal effect for discrete change of dummy variable from 0 to 1
Estimates of the marginal effect on inside directors turnover probability between T=0 and T=4 from a
binomial probit model. Inside directors include all directors that were employees or former employees of the
firm as of T=0. Dependent variable is 1 if the director leaves the board by T=4, 0 if the director remains on
the board at T=4. Positive marginal effects indicate that an increase in the independent variable increases
the probability of departure. Cluster-robust standard errors in parentheses. *** significant at the 1 percent,
** 5 percent and * 10 percent levels.
7
Table 7. CEO Turnover Probability
Director characteristics:
Age 61-65 (0/1) +
Age 66-70 (0/1) +
Age >70 (0/1) +
Log(Board Tenure)
Voting Share (%)
Firm characteristics:
Log(Total Assets)
Firm Performance
Proportion of Outside Directors
Case characteristics:
Restatement of financials (0/1) +
Other GAAP (0/1) +
Suit Settled (0/1) +
Settlement amount in Q4 (0/1) +
Scaled settlement in Q4 (0/1) +
[1]
[2]
[3]
[4]
0.068
(0.099)
0.242
(0.233)
-0.114
(0.305)
-0.006
(0.042)
-0.017
(0.005)***
0.056
(0.102)
0.214
(0.247)
-0.059
(0.305)
-0.002
(0.043)
-0.018
(0.005)***
0.083
(0.099)
0.279
(0.207)
-0.024
(0.303)
-0.006
(0.043)
-0.017
(0.005)***
0.075
(0.100)
0.271
(0.223)
-0.047
(0.315)
-0.015
(0.043)
-0.017
(0.005)***
-0.001
(0.018)
-0.091
(0.038)**
0.241
(0.230)
-0.002
(0.018)
-0.083
(0.037)**
0.244
(0.230)
-0.017
(0.019)
-0.086
(0.038)**
0.271
(0.232)
0.014
(0.019)
-0.085
(0.037)**
0.263
(0.236)
0.261
(0.067)***
0.101
(0.069)
0.234
(0.070)***
0.089
(0.070)
0.122
(0.063)*
0.225
(0.071)***
0.063
(0.072)
0.247
(0.069)***
0.097
(0.069)
0.257
(0.081)***
0.277
(0.081)***
Number of Observations
323
323
323
323
Pseudo-R2
0.120
0.128
0.139
0.143
+ marginal effect for discrete change of dummy variable from 0 to 1
Estimates of the marginal effect on CEO turnover probability between T=0 and T=4 from a binomial probit
model. Directors classified as CEOs held the title of CEO in the defendant firm as of T=0. Dependent
variable is 1 if the director leaves the board by T=4, 0 if the director remains on the board at T=4. Positive
marginal effects indicate that an increase in the independent variable increases the probability of departure.
Cluster-robust standard errors in parentheses. *** significant at the 1 percent, ** 5 percent and * 10 percent
levels.
8
Table 8. Director Turnover Probability and Outside Equity Ownership
Concentration
[Outsiders] [Outsiders]
Director characteristics:
Age 61-65 (0/1) +
Age 66-70 (0/1) +
Age >70 (0/1) +
Log(Board Tenure)
Voting Share (%)
CEO (0/1) +
Firm characteristics:
Log(Total Assets)
Firm Performance
Proportion of Outside Directors
Institutional Holdings
Outside Blockholdings
Case characteristics:
Restatement of financials (0/1) +
Other GAAP (0/1) +
Suit Settled (0/1) +
Settled x Inst. Holdings
Settled x Outside Blockholdings
[Insiders]
[Insiders]
[CEOs]
[CEOs]
-0.018
(0.028)
0.269
(0.030)***
0.423
(0.033)***
-0.020
(0.014)
0.003
(0.003)
-0.012
(0.027)
0.271
(0.030)***
0.423
(0.032)***
-0.026
(0.014)*
0.003
(0.003)
0.004
(0.058)
-0.059
(0.090)
0.131
(0.102)
-0.023
(0.024)
-0.015
(0.003)***
-0.020
(0.043)
0.006
(0.058)
-0.068
(0.088)
0.156
(0.094)*
-0.024
(0.024)
-0.014
(0.003)***
-0.035
(0.042)
0.055
(0.101)
0.245
(0.236)
-0.037
(0.311)
-0.009
(0.044)
-0.020
(0.005)***
0.032
(0.103)
0.214
(0.262)
-0.086
(0.288)
0.002
(0.043)
-0.019
(0.005)***
0.003
(0.006)
-0.035
(0.015)**
0.142
(0.094)
-0.003
(0.001)***
0.004
(0.007)
-0.039
(0.015)**
0.174
(0.096)*
0.006
(0.012)
-0.076
(0.024)***
0.159
(0.148)
-0.003
(0.001)**
0.005
(0.012)
-0.076
(0.024)***
0.171
(0.147)
-0.003
(0.019)
-0.078
(0.037)**
0.221
(0.232)
-0.004
(0.002)
-0.012
(0.019)
-0.096
(0.037)**
0.299
(0.233)
0.113
(0.047)**
0.101
(0.045)**
-0.066
(0.124)
0.002
(0.002)
0.112
(0.046)**
0.102
(0.044)**
0.052
(0.056)
0.242
(0.070)***
0.107
(0.071)
-0.010
(0.210)
0.002
(0.003)
0.242
(0.070)***
0.087
(0.071)
0.114
(0.091)
0.035
(0.029)
0.009
(0.026)
-0.098
(0.075)
0.002
(0.001)**
-0.003
(0.001)**
0.050
(0.029)*
0.009
(0.026)
-0.007
(0.033)
-0.001
(0.002)
0.004
(0.002)**
Number of Observations
2261
2344
776
Pseudo-R2
0.076
0.075
0.085
+ marginal effect for discrete change of dummy variable from
0.002
(0.003)
795
0.083
0 to 1
314
0.136
Estimates of the marginal effect on director turnover probability between T=0 and T=4 from a binomial
probit model. Directors classified as outsiders, insiders or CEOs as of that annual meeting at T=0. Dependent variable is 1 if the director leaves the board by T=4, 0 if the director remains on the board at T=4.
Positive marginal effects indicate that an increase in the independent variable increases the probability of
departure. Cluster-robust standard errors in parentheses. *** significant at the 1 percent, ** 5 percent and
* 10 percent levels.
-0.005
(0.004)
0.001
(0.005)
323
0.135
9
Table 9. Director Turnover Probability with Additional Indicators of
Seriousness of Wrongdoing
[Outsiders] [Outsiders]
Director characteristics:
Age 61-65 (0/1) +
Age 66-70 (0/1) +
Age >70 (0/1) +
Log(Board Tenure)
Voting Share (%)
CEO (0/1) +
Firm characteristics:
Log(Total Assets)
Firm Performance
Proportion of Outside Directors
Case characteristics:
Restatement of financials (0/1) +
Other GAAP (0/1) +
Overlapping SEC action (0/1) +
Ab.Ret. End Cls Per [-2,+2]
Suit Settled (0/1) +
Scaled settlement in Q4 (0/1) +
[Insiders]
[Insiders]
[CEOs]
[CEOs]
-0.012
(0.028)
0.279
(0.030)***
0.432
(0.032)***
-0.025
(0.014)*
0.003
(0.003)
-0.009
(0.028)
0.280
(0.030)***
0.433
(0.032)***
-0.024
(0.014)*
0.003
(0.003)
-0.011
(0.059)
-0.052
(0.089)
0.146
(0.096)
-0.020
(0.024)
-0.014
(0.003)***
-0.040
(0.043)
-0.008
(0.059)
-0.042
(0.090)
0.153
(0.094)
-0.027
(0.024)
-0.013
(0.003)***
-0.042
(0.043)
0.056
(0.102)
0.219
(0.242)
-0.057
(0.310)
0.000
(0.043)
-0.018
(0.005)***
0.071
(0.101)
0.273
(0.218)
-0.054
(0.321)
-0.010
(0.043)
-0.017
(0.005)***
0.011
(0.007)*
-0.036
(0.015)**
0.104
(0.096)
0.018
(0.007)***
-0.036
(0.015)**
0.099
(0.097)
-0.002
(0.012)
-0.081
(0.024)***
0.203
(0.149)
0.011
(0.013)
-0.082
(0.024)***
0.186
(0.151)
-0.003
(0.019)
-0.080
(0.038)**
0.245
(0.234)
0.014
(0.020)
-0.081
(0.038)**
0.267
(0.241)
0.058
(0.030)*
0.001
(0.026)
-0.004
(0.027)
-0.096
(0.055)*
0.040
(0.023)*
0.062
(0.030)**
0.004
(0.026)
-0.014
(0.027)
-0.105
(0.054)*
0.110
(0.049)**
0.100
(0.045)**
-0.001
(0.047)
0.139
(0.093)
0.080
(0.040)**
0.126
(0.048)***
0.114
(0.045)**
-0.033
(0.048)
0.143
(0.094)
0.224
(0.075)***
0.086
(0.071)
0.014
(0.076)
0.064
(0.155)
0.109
(0.064)*
0.246
(0.074)***
0.098
(0.071)
-0.015
(0.077)
0.082
(0.159)
0.127
0.235
(0.037)***
(0.051)***
Number of Observations
2300
2300
777
777
Pseudo-R2
0.077
0.080
0.085
0.098
+ marginal effect for discrete change of dummy variable from 0 to 1
315
0.124
Estimates of the marginal effect on director turnover probability between T=0 and T=4 from a binomial
probit model. Directors classified as outsiders, insiders or CEOs as of that annual meeting at T=0. Dependent variable is 1 if the director leaves the board by T=4, 0 if the director remains on the board at T=4.
Positive marginal effects indicate that an increase in the independent variable increases the probability of
departure. Cluster-robust standard errors in parentheses. *** significant at the 1 percent, ** 5 percent and
* 10 percent levels.
0.282
(0.081)***
315
0.141
10
Table 10. Change in Board Structure
T=0
T=4
Change
P-value:
P-value:
Change=0 Equal change
Panel A
Number of Directors
Settled
9.387 9.120
-0.267
Dismissed
9.614 9.386
-0.229
Percentage of Outside Directors
Settled
72.681 78.387
5.706
Dismissed
74.093 79.163
5.070
Percentage of New Directors
Settled
49.137
9.367
Dismissed
39.770
Panel B
Number of Directors
Q4 Scaled Settlement 8.021 8.104
0.083
Other
9.731 9.424
-0.307
Percentage of Outside Directors
Q4 Scaled Settlement 68.975 77.812
8.837
Other
74.008 78.868
4.860
Percentage of New Directors
Q4 Scaled Settlement
59.611 16.884
Other
42.727
0.100
0.248
0.880
0.000
0.000
0.616
0.000
0.773
0.026
0.218
0.000
0.000
0.050
0.000
Comparison of the mean value of certain board characteristics at T=0 and T=4. Panel A partitions SFCAs
into those that are settled and those that are dismissed. Panel B partitions SFCAs into those settled actions
for which the ratio of settlement amount to total assets is in the top quartile and all other actions. Change
is the difference in sample means between T=0 and T=4. P-value is the significance of the difference in
mean values between T=0 and T=0 using a two-sided t-test. P-value of equal change is the significance of
a test for differences in the difference between T=0 and T=4 among each subset of the sample.