Abstract

http://ssrn.com/abstract=2444383
 


 



Shareholder Litigation and the Cost of Bank Loans -- Evidence from a Natural Experiment


Yongqiang Chu


University of South Carolina - Moore School of Business

May 2014


Abstract:     
I study how the threat of shareholder litigation affects the cost of bank loans using a natural experiment based on a ruling by the Ninth Circuit Court of Appeals that makes class action shareholder litigation more difficult. I find that increasing the difficulty of securities class action suit decreases loan spreads, and the effect is stronger for firms closer to bankruptcy. The result is consistent with the argument that shareholder litigation can lead to wealth extraction from lenders in bankruptcy. I also find that the ruling increases loan spreads for firms with better credit quality and weaker corporate governance mechanisms, which is consistent with the argument that the threat of shareholder litigation can help discipline managers.

Number of Pages in PDF File: 38

Keywords: Shareholder Litigation, Bank Loan, Class Action, Wealth Extraction, Corporate Governance

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Date posted: June 2, 2014 ; Last revised: June 5, 2014

Suggested Citation

Chu, Yongqiang, Shareholder Litigation and the Cost of Bank Loans -- Evidence from a Natural Experiment (May 2014). Available at SSRN: http://ssrn.com/abstract=2444383 or http://dx.doi.org/10.2139/ssrn.2444383

Contact Information

Yongqiang Chu (Contact Author)
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-5960 (Phone)
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