In the US, shareholders can form a class action to sue a company under S10b-5 of the Securities Exchange Act for allegedly releasing misleading information, or for failing to disclose material information. The substantial cost of litigation, and its associated impact on shareholder value, has prompted debate over whether to reform access to the shareholder class action mechanism. However, the debate is as yet unguided by any study of the long-term financial impact on firms involved in litigation. The core hypothesis of this thesis is that where shareholders class action litigation fails to rectify perceived governance and operational shortcomings within the defendant firm, a period of long-term underperformance of that firm’s stock price comes into play. The primary finding of the study is that defendant firms experience share-price underperformance during the three years subsequent to a shareholder class action.. Furthermore, firms with lower quality accounting practices or a greater probability of earnings manipulation during the class period underperform defendants with higher quality accounting practices Despite the share price underperformance of defendant firms, litigation is found to significantly improve the long-term operating performance (return on assets) of defendant firms. Whilst the class action mechanism has predominantly targeted “technology” firms (62% of litigation targets are listed on the NASDAQ Exchange), there is no significant divergence between portfolios of technology and non-technology defendants.