The Research On The Governance Of The Security Class Action

The systemic bias, which is as for the single and joint actions ,prevents the dispersed investors from exercising their litigation rights in securities actions and help the listed expropriate their rights. The class action may overcome such bias, and facilitate the listed firms to choose the strategy of no-fraud or lower fraud and more effectively curb the agency problems. The minority shareholders can make good use of this powerful tool to reject the expropriation. However, the agency problem of the class action itself can ruin that value.The nature of the agency problem is the alienation of the benefit pursue between the class members and the class counsels. The means to solve that problem are as follow: the arrange of the lawyer's fee, auctions with Almost Common Values and class counsel auction and so on. Although the lodestar fee is simple and easy, lure the lawyer to prolong litigation. The leverage fee encourages the lawyers to complete the action as soon as possible, but the determent of the leverage is a big problem. Auctions with Almost Common Values can make the plaintiffs' attorney no longer has an incentive to engage in collusive settlements with the defendant and seek to prosecute the action for all it may be worth. But this way lead the lawyers to bid so highly that they cannot afford at last, which attracts the whole bidders to bid lowly as possible as they can, that help defendant expropriate the class members too. The worse is that only see the bid price not the other factors such as skill and reputation and so on. The auction can choose out the class counsel who has the privilege skill, but need other to cooperate. So, the class action governance in the China is composed of the auction, mandatory disclosure, the same percentage of the reward percentage and the cost-bearing percentage, competing bid in the litigation and so on. All are to protect the investors in stock market.