Misrepresentation and capital structure: Quantifying the impact on corporate debt value

Our findings have important consequences for damages assessment and the allocation of settlement awards in securities class actions. In some jurisdictions damages awarded are net of any hedge or risk-limitation transaction. Since corporate securities such as bonds and stocks are often held in portfolios for hedging purposes, measuring the effect of misrepresentation on all of the firm's issuances is essential to accurately computed damages awards. Additionally our approach provides a consistent methodology for computing damages for securities that do not trade on public markets. A case study of a recent securities class action illustrates our methodology.