Shareholder Litigation, Shareholder-Creditor Conflict, and the Cost of Bank Loans
University of South Carolina - Darla Moore School of Business
December 29, 2014
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. Using a difference-in-differences method, I find that increasing the difficulty of securities class action suits decreases loan spreads. The effect is stronger for firms with higher institutional ownership, which is consistent with the argument that class actions suits help shareholders extract wealth from creditors when the firm is in bankruptcy. Further analysis confirms that the effect is in fact stronger for firms closer to bankruptcy.
Number of Pages in PDF File: 50
Keywords: Shareholder Litigation, Shareholder-Creditor Conflict, Bankruptcy, Value Destruction
Date posted: June 2, 2014 ; Last revised: December 30, 2014
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