The Determinants of IPO-Related Shareholder Litigation: The Role of CEO Equity Incentives and Corporate Governance
65 Pages Posted: 25 Jan 2011 Last revised: 24 Jul 2016
Date Written: July 17, 2016
This paper examines how compensation and corporate governance mechanisms affect the occurrence of securities fraud and related shareholder litigation for young IPO firms. While prior research has focused on seasoned firms, we examine how CEO incentives and corporate governance in IPO firms affect the incidence of IPO-related shareholder litigation. We find that the likelihood of securities fraud allegations increases with pre-IPO CEO equity incentives, suggesting a “dark side” to executive equity incentives. Additionally, we find that the risk of being sued is higher for firms whose boards are dominated by insiders, whose CEOs are older, have shorter tenure, or who founded the firm.
Keywords: Initial Public Offerings, CEO Equity Incentives, Corporate Governance
JEL Classification: G12, G14, G30
Suggested Citation: Suggested Citation