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

See all articles by Xingli Li

Xingli Li

Sunlife Everbright Insurance

Kuntara Pukthuanthong

University of Missouri, Columbia

Marcus Glenn Walker

Fin-Consult

Thomas John Walker

Concordia University, Quebec - Department of Finance

Date Written: July 17, 2016

Abstract

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

Li, Xingli and Pukthuanthong, Kuntara and Walker, Marcus Glenn and Walker, Thomas John, The Determinants of IPO-Related Shareholder Litigation: The Role of CEO Equity Incentives and Corporate Governance (July 17, 2016). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1747947 or http://dx.doi.org/10.2139/ssrn.1747947

Xingli Li

Sunlife Everbright Insurance ( email )

Beijing
China

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: https://www.kuntara.net/

Marcus Glenn Walker

Fin-Consult

Griesheim
Germany

Thomas John Walker (Contact Author)

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

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