Shareholder Litigation and Ownership Structure: Evidence from a Natural Experiment

Management Science, Forthcoming

59 Pages Posted: 21 Jan 2014 Last revised: 27 Sep 2016

See all articles by Alan D. Crane

Alan D. Crane

Rice University - Jesse H. Jones Graduate School of Business

Andrew Koch

University of Pittsburgh - Finance Group

Date Written: March 28, 2016

Abstract

We use a natural experiment to identify a causal effect of the threat of shareholder litigation on ownership structure, governance, and firm performance. We find that when it becomes harder for small shareholders to litigate, ownership becomes more concentrated and shifts from individuals to institutions. Director and officer governance protections drop among these firms, and operating performance drops among firms whose ownership structure does not change. These results suggest that the ability of shareholders to coordinate and litigate against management is important for governance.

Keywords: Litigation; Shareholder Coordination; Ownership Structure; Governance; Institutional Ownership; Securities Class Action

JEL Classification: G23, G32

Suggested Citation

Crane, Alan D. and Koch, Andrew, Shareholder Litigation and Ownership Structure: Evidence from a Natural Experiment (March 28, 2016). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2382278 or http://dx.doi.org/10.2139/ssrn.2382278

Alan D. Crane (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Andrew Koch

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

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