The Consequences of Limiting Shareholder Litigation: Evidence from Exclusive Forum Provisions
55 Pages Posted: 20 Aug 2015 Last revised: 10 Jul 2019
Date Written: July 2019
In response to an explosion of shareholder litigation, many firms have adopted exclusive forum provisions which limit lawsuits to courts in a firm’s state of incorporation. This paper examines the consequences of a required venue for shareholder litigation. Provision adopters and firms likely to face litigation experience significant increases in firm value around three exogenous events that confirmed the use of a specified forum. Reduced legal and reputation costs contribute to the increase in firm value. Overall, these findings suggest that a required venue for shareholder litigation benefits firms by eliminating multi-jurisdictional lawsuits and reducing the threat of meritless claims.
Keywords: Shareholder litigation, corporate governance, exclusive forum provision
JEL Classification: G30, G34, K22, K41
Suggested Citation: Suggested Citation