A Model of Shareholder Litigation as a Determinant of a Firm's Financial Policies

34 Pages Posted: 27 Jul 2016 Last revised: 17 Nov 2017

See all articles by Vuk Talijan

Vuk Talijan

University of Southern California - Marshall School of Business

Date Written: November 15, 2017

Abstract

The option to file a lawsuit against an entrepreneur encourages shareholders to fund projects and to retain entrepreneurs. An entrepreneur, at risk of a lawsuit filing, may save cash as a precautionary measure. When cash accumulates and a lawsuit filing does not occur, an entrepreneur increases investment in hopes of superior future performance. But if future performance wanes notwithstanding, shareholders then file a lawsuit against their entrepreneur. When cash is limited, debt may act as an alternative precautionary measure against a lawsuit filing. In summary, shareholder litigation risk can increase cash, investment, and debt.

Keywords: Theoretical Corporate Finance, Shareholder Litigation

JEL Classification: G32, G33, G38, K22, K41

Suggested Citation

Talijan, Vuk, A Model of Shareholder Litigation as a Determinant of a Firm's Financial Policies (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=2814348 or http://dx.doi.org/10.2139/ssrn.2814348

Vuk Talijan (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
63
rank
329,326
Abstract Views
401
PlumX Metrics