The size of the monetary penalty could be an indication of the pervasiveness of the
alleged fraud and management’s complicity. Consistent with the provisions of the
PSLRA, a sued firm should be levied a monetary penalty when a securities lawsuit
contains a strong evidence of intent to commit fraud (King and Schwartz, 1997; Choi
and Thompson, 2006). Johnson et al. (2007) note that the size of the monetary penalty
levied on sued firms is a signal of the merit of a securities lawsuit. Thus, a securities
lawsuit resulting in a larger monetary penalty could be associated with greater penalty
to the CEO because of the stronger evidence of wrongdoing