The Changing Landscape of Auditors’ Liability

Authors

Colleen HonigsbergFollow
Shivaram RajgopalFollow
Suraj SrinivasanFollow

Start Page

367

Abstract

We provide a comprehensive overview of shareholder litigation against auditors since the passage of the Private Securities Litigation Reform Act. The number of lawsuits per year has declined, dismissals have increased, and settlements in recent years have declined. Our study asks why. Tests indicate that the decline cannot be attributed solely to increases in audit quality, leading us to consider whether Supreme Court cases limiting the scope of Rule 10b-5 against private actors may have led to the decline. To study this possibility, we focus on the Supreme Court’s 2007 and 2011 rulings in Tellabs v. Makor and Janus v. First Derivative, respectively. Our analysis provides strong evidence that the higher liability standards imposed by Janus significantly reduced auditors’ liability exposure, but we find only limited evidence that the pleading standards imposed by Tellabs had a significant effect.

Recommended Citation

Honigsberg, Colleen; Rajgopal, Shivaram; and Srinivasan, Suraj (2020) "The Changing Landscape of Auditors’ Liability," Journal of Law and Economics: Vol. 63: No. 2, Article 6.
Available at: https://chicagounbound.uchicago.edu/jle/vol63/iss2/6