A securities lawsuit could impose a substantial monetary penalty on a sued firm
and trigger the termination of its management officers. There is evidence in the
literature that the filing of a securities lawsuit is associated with a higher probability of
management and board turnover. Studies such as Collins et al. (2008) find that a
securities lawsuit filing following an accounting restatement increases the likelihood of
CEO and CFO turnover. Ferris et al. (2007) document a higher likelihood of board
turnover when a derivative lawsuit is filed[4]. Persons (2006) finds significantly higher
CEO turnover within lawsuit firms compared to no-lawsuit firms. Romano (1991),
Strahan (1998) and Niehaus and Roth (1999) also report that the likelihood of CEO
turnover increases with a securities lawsuit filing.