On the Persistence of Law Firm Performance in Securities Class Action Lawsuits

We document that the skill of plaintiffs’ law firms, measured by dismissal ratio, strongly predicts the outcomes of securities class action lawsuits. Lawsuits conducted by skilled law firms are more likely to be settled and have larger settlement amounts, while the defendant firms experience more negative cumulative abnormal stock returns and a higher likelihood of CEO turnover. Law firm skill includes both ability in selecting cases and achieving favorable outcomes. Clients do not chase past performance, while less skilled law firms are more likely to disappear. Overall, the persistence of law firm performance implies traceable law firm skills in securities class action lawsuits