Cross-Border Shareholder Class Actions Before and after Morrison

We conduct an empirical inquiry into the effect of the Supreme Court's 2010 Morrison decision, which limited the reach of US securities laws to trades occurring on US markets, on the competitiveness of US markets as a venue for listings by foreign issuers and trading in cross-listed stocks. In the wake of the Morrison decision, the Dodd-Frank Act requires that the SEC inform Congress about the merits of creating a new extraterritorial right of action. We provide input into the debate by using data on 329 shareholder class actions filed against foreign-domiciled companies and discussing the effects of such a right on the competitiveness of U.S. capital markets. We conclude that, following Morrison, foreign companies’ expected litigation costs should fall, because investors who purchased their shares on overseas exchanges will be excluded from classes. By reducing expected litigation costs, Morrison eases a deterrent to US listing by foreign issuers and thereby makers the US a more competitive venue for cross-listings, as well as for the volume in cross-listed stocks.