How do analysts react to shareholder class action lawsuits
This paper examines security analyst's earnings estimates and recommendations during the period around shareholder class action lawsuits. We find that analysts respond rapidly to the class action lawsuits. The magnitude of the forecast revisions is greater for smaller firms and for firms with large unexpected earnings surprises (SUE) high beta, and more negative three day cumulative abnormal returns around the filing date. The speed of analyst response is directly related to firm size, SUE, beta, and share turnover, and is inversely related to the magnitude of the cumulative abnormal return for the three days around filing date. Finally, our results show that analysts utilize an industry spillover effect when estimating earnings for other related firms in the same industry.