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Recent Trends in Securities Class Action Litigation: 2014 Full-Year Review

March 27, 2015 Comments off

Recent Trends in Securities Class Action Litigation: 2014 Full-Year Review
Source: NERA Economic Consulting

Securities class action settlement amounts plummeted in 2014 according to new analysis from NERA. In the latest edition of this annual study, Recent Trends in Securities Class Action Litigation: 2014 Full-Year Review, co-authors Dr. Renzo Comolli and Svetlana Starykh examine a wide range of data and draw from more than 20 years of NERA research on case filings and settlements in the US.

Measured by median amount, settlement amounts have been the lowest in 10 years. Measured by average amount, settlements have dropped 38-61 percent, depending on which types of class actions are considered. Moreover, average settlement amounts were actually lower after Halliburton II as compared with the previous part of 2014.

On the other hand, filings of 10b-5 cases increased 14 percent post Halliburton II compared to when the case was before the Court. Filings alleging violations of Rule 10b-5, Section 11, or Section 12 totaled 168 in 2014, an 11 percent increase over 2013 and a 30 percent increase over 2010 (the recent trough).

See also: Trends in Canadian Securities Class Actions: 2014 Update

The Lost Generation of the Great Recession

March 20, 2015 Comments off

The Lost Generation of the Great Recession
Source: Social Science Research Network

This paper analyzes the effects of the Great Recession on different generations. While older generations have suffered the largest decline in wealth due to the collapse in asset prices, younger generations have suffered the largest decline in labor income. Potentially, the young may benefit from the purchase of cheaper assets, especially if they have access to credit. To analyze the impact of these channels, I construct an overlapping generations model with borrowing constraints in which households choose a portfolio over risky and risk-free assets. Shocks to labor efficiency and uncertainty regarding the return on risky assets generate a recession with a drop in asset prices and cross-sectional changes in risky investment that are consistent with the recent recession. Overall, the young suffer the largest welfare losses, equivalent to an 8 percent reduction in lifetime consumption.

Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions

March 19, 2015 Comments off

Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions
Source: Center for Retirement Research at Boston College

The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the “catch-up provision,” which was enacted in 2001 and allows workers over age 50 to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. Compared with similar workers under age 50, the study finds that contributions increased by $540 more among age-50-plus individuals who had approached the 401(k) tax-deferral limits prior to turning 50, suggesting that the older individuals respond to the expanded tax incentives. For this group, the elasticity of retirement savings to the tax incentive is quite high: a one-dollar increase in the tax-deferred limit leads to an immediate 49-cent increase in 401(k) contributions.

The Ideal Proxy Statement

March 10, 2015 Comments off

The Ideal Proxy Statement
Source: Stanford Graduate School of Business

Institutional investors are highly dissatisfied with the quality of information that they receive about corporate governance policies and practices in the annual proxy. Across the board, they want proxies to be shorter, more concise, more candid, and less legal. The largest complaint involves executive compensation and the inability of investors to determine whether senior management is paid appropriately.

Based on recent survey data from major institutional investors, we describe the information that shareholders would like to see in the “ideal” proxy statement.

We ask:

  • What changes can companies make to proxies that contain the information that investors want in a format that is easy to read and navigate?
  • Would shareholder understanding of corporate governance practices improve if companies provided clearer and more succinct data?
  • How might the debate about executive compensation change?

Insider Trading in Commodities Markets

March 5, 2015 Comments off

Insider Trading in Commodities Markets
Source: Social Science Research Network

In securities markets, insider trading is a crime. In commodities, insider trading is almost completely legal. This divergent treatment has long been accepted as appropriate, given perceived differences between the markets. For example, it has been thought that futures traders are sophisticated enough to neither need nor want protections from informed traders, and that the assets traded – corn, copper – do not lend themselves to insider trading anyway.

This Article disagrees, showing that purported differences between these two markets do not withstand serious scrutiny, and that insider trading is harmful in the same ways in both markets and should be governed by the same restrictions. Understanding securities and commodities markets to be peer financial markets permits for the first time a serious dialogue between scholars of both fields, and this Article takes the first steps to applying theories from the securities literature to commodities markets and holding those theories up for verification or falsification against new data from commodities markets.

CRS — Tax-Preferred College Savings Plans: An Introduction to 529 Plans (February 23, 2015)

March 5, 2015 Comments off

Tax-Preferred College Savings Plans: An Introduction to 529 Plans (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

In the face of the rising cost of higher education, families may consider a variety of ways to finance their children’s college expenses. In order to make higher education more affordable, Congress has enacted legislation that provides favorable tax treatment for college savings. Among the options families may choose to save for college, they may consider using tax-advantaged qualified tuition programs (QTPs), also known as 529 plans. This report provides an overview of the mechanics of 529 plans and examines the specific tax advantages of these plans. For an overview of all tax benefits for higher education, see CRS Report R41967, Higher Education Tax Benefits: Brief Overview and Budgetary Effects, by Margot L. Crandall-Hollick.

Warren Buffett’s Letter to Berkshire Shareholders – 2014 (2/28/15)

March 3, 2015 Comments off

Warren Buffett’s Letter to Berkshire Shareholders – 2014 (PDF)
Source: Berkshire Hathaway

Berkshire’s gain in net worth during 2014 was $18.3 billion, which increased the per-share book value of both our Class A and Class B stock by 8.3%. Over the last 50 years (that is, since present management took over), per-share book value has grown from $19 to $146,186, a rate of 19.4% compounded annually.

During our tenure, we have consistently compared the yearly performance of the S&P 500 to the change in Berkshire’s per-share book value. We’ve done that because book value has been a crude, but useful, tracking device for the number that really counts: intrinsic business value.

In our early decades, the relationship between book value and intrinsic value was much closer than it is now. That was true because Berkshire’s assets were then largely securities whose values were continuously restated to reflect their current market prices. In Wall Street parlance, most of the assets involved in the calculation of book value were “marked to market.”

Today, our emphasis has shifted in a major way to owning and operating large businesses. Many of these are worth far more than their cost-based carrying value. But that amount is never revalued upward no matter how much the value of these companies has increased. Consequently, the gap between Berkshire’s intrinsic value and its book value has materially widened.

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