Institutional Activism Through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions


George W. Matheson Professor of Law, St. John's University School of Law, 8000 Utopia Pkwy, Jamaica, NY 11439; email: Subject to the usual caveats, I would like to thank John Beckerman, Bernard Black, Ted Eisenberg, Jill Fisch, Joseph Grundfest, Michael Klausner, Ronald Masulis, and Jeff Rachlinski, as well as the participants at the 2006 American Law and Economics Association Annual Meeting, the 2005 Eugene P. and Delia S. Murphy Conference on Corporate Law at Fordham University School of Law, and workshops at Vanderbilt and Stanford Law Schools for helpful comments and suggestions on this article.


The PSLRA's lead plaintiff provision enlisted institutional investors to monitor class counsel in order to curb the agency costs endemic in securities class actions. This article uses a sample of 731 settlements to examine the efficacy of this provision. It finds that, even when controlling for institutional self-selection of potentially easier or higher-quality cases, cases with public pension lead plaintiffs have larger recoveries and lower fee requests and fee awards than cases with other lead plaintiff types. The article also finds evidence consistent with the existence of a significant positive externality associated with public pension participation. Over time, fee requests and fee awards have on average declined significantly even in cases without such lead plaintiffs. These findings suggest that public pensions act as more effective monitors of class counsel than traditional plaintiffs and that the lead plaintiff provision has substantially reduced the transactions costs associated with securities class actions.