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Following the Supreme Court’s 1988 decision in Basic, securities class plaintiffs can invoke the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” [the “fraud-on-the-market” doctrine] to prove classwide reliance. Although this requires plaintiffs to prove that the security traded in an informationally efficient market throughout the class period, Basic did not identify what constituted adequate proof of efficiency for reliance purposes.

Market efficiency cannot be presumed without proof because even large publicly traded stocks do not always trade in efficient markets, as documented in the economic literature that has grown significantly since Basic. For instance, during the recent global financial crisis, lack of liquidity limited arbitrage (the mechanism that renders markets efficient) and led to significant price distortions in many asset markets. Yet, lower courts following Basic have frequently granted class certification based on a mechanical review of some factors that are considered intuitive “proxies” of market efficiency (albeit incorrectly, according to recent studies and our own analysis). Such factors have little probative value and their review does not constitute the rigorous analysis demanded by the Supreme Court.

Instead, to invoke fraud-on-the-market, plaintiffs must first establish that the security traded in a weak-form efficient market (absent which a security cannot, as a logical matter, trade in a “semi-strong form” efficient market, the standard required for reliance purposes) using well-accepted tests. Only then do event study results, which are commonly used to demonstrate “cause and effect” (i.e., prove that the security’s price reacted quickly to news – a hallmark of a semi-strong form efficient market), have any merit. Even then, to claim classwide reliance, plaintiffs must prove such cause-and-effect relationship throughout the class period, not simply on selected disclosure dates identified in the complaint as plaintiffs often do.

These issues have policy implications because, once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.

We find that, at low levels of insider ownership, the market's reaction to dividend increases becomes less positive, and to dividend decreases becomes less negative, as insider ownership increases. The price reaction is larger when insiders control voting on shares they do not own and lower if a family owns a block. The results are .stronger for firms with low values of Tobin's Q. Several tests indicate that these cross-sectional results are not a manifestation of the information content hypothesis. Instead, the findings support the hypothesis that dividend increases reduce the agency costs of free cash flow and vice versa.

Chen and Ritter (2000) documented that underwriter spreads for recent US initial public offerings (IPOs) in $20 million range as well as much larger IPOs in the $80 million range are clustered at 7%. This observation has led to a Department of Justice (DOJ) enquiry into potential price fixing by underwriters. We demonstrate through a times series analysis that IPOs have tripled in size and become much riskier over time. A pooled data analysis can therefore mask evidence of competition in the market. We find that spread clustering is not a recent phenomenon. Over time, clustering at 7% has increased as clustering above 7% has declined. IPO spreads have declined significantly over time as the firms going public more recently are riskier, underwriting efforts have increased and recent IPOs are much larger than IPOs in the past. Controlling for time trends, larger IPOs have lower average spreads. The market for underwriting IPOs seems to be competitive with entry of new firms during the hot markets.

It is widely believed that contrary to standard asset allocation theory, employees irrationally hold concentrated investments in company stock in their 401(k) plans thus bearing firm-specific risk that could otherwise have been diversified away (see e.g., Benartzi, 2001). However, in measuring any such lack of diversification costs, a unique tax benefit associated with such investments (available to those who choose the Net Unrealized Appreciation (NUA) strategy) has been hitherto ignored. We analyze an employee's optimal allocation of retirement assets among alternative investments, including company stock, in the presence of the NUA tax benefit. The employee has a standard power utility function and seeks to maximize expected utility from her after-tax wealth upon retirement. Based on simulations, we find that, even when company stock is stochastically dominated by investments in the market index, the employee will allocate a non-trivial part of her retirement funds to company stock for a wide range of parameter values. Consistent with empirical evidence, the allocation to company stock is greater for employees closer to retirement and when the company's stock has experienced substantial gain in value.

This paper aims to examine the traditional business communities and family businesses of India, their emergence and sustained growth.

The authors analyze the role of business communities in family businesses of India and identify business communities that have still sustained and marked a global presence.

Business communities such as Marwaris have the knack for business activities and are leaders of family businesses in India today, who have sustained their past success and continue to create new histories. Other traditional business communities such as Parsis, Sindhis, Chettiars and Gujarati banias have not been able to sustain much. Possible reasons were switching to white-collar jobs, taking up diplomacy and other professions, inter caste marriages, international migration in search of business and Indian government policies.

This study provides a useful source of information for academics, policy-makers and economists.

Traditional business communities populate the list of family businesses that have marked their global presence. This paper identifies various factors that are responsible for the growth and sustainability of these business communities.

The study clarifies the role of business communities in domestic economic development.

The paper explored traditional business communities of India and assessed their role in family businesses of India that currently mark a global presence.