Using a dataset of securities class actions filed from 2003 to 2005, this paper assesses the effect of the lead plaintiff presumption enacted as part of the Private Securities Litigation Reform Act of 1995 (PSLRA) on agency costs between lead counsel for the class and class members. Examining the pre-trial motions for lead plaintiff for each class action, the paper reports evidence that plaintiffs’ attorneys retain significant control over the selection of lead plaintiff, cutting side deals to determine the selection of lead plaintiff and thereby lead counsel. Using proxies for where plaintiffs’ attorneys have relatively greater influence over the selected lead plaintiff, the paper reports that plaintiffs’ attorneys with greater power are able to negotiate higher attorneys’ fees as a percentage of the recovery and work fewer hours.
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