Abstract

http://ssrn.com/abstract=2444383
 


 



Shareholder Litigation, Shareholder-Creditor Conflict, and the Cost of Bank Loans


Yongqiang Chu


University of South Carolina - Moore School of Business

October 6, 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. Using a difference-in-difference 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 can 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: 45

Keywords: Shareholder Litigation, Bank Loan, Class Action, Wealth Extraction, Bankruptcy

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Date posted: June 2, 2014 ; Last revised: October 8, 2014

Suggested Citation

Chu, Yongqiang, Shareholder Litigation, Shareholder-Creditor Conflict, and the Cost of Bank Loans (October 6, 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 )
1014 Greene Street
Columbia, SC 29208
United States
803-777-5960 (Phone)
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