Shareholder Litigation Rights and the Cost of Debt: Evidence from Derivative Lawsuits

47 Pages Posted: 22 Aug 2016 Last revised: 4 Nov 2017

See all articles by Xiaoran Ni

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Xiamen University - School of Economics

Sirui Yin

Miami University of Ohio

Date Written: November 1, 2017

Abstract

Exploiting the staggered adoption of universal demand (UD) laws as exogenous shocks to filing derivative lawsuits, we find that weakened shareholder litigation rights cause a significant increase in the cost of debt. Deteriorated corporate governance, increased information asymmetry, and heightened managerial risk-taking are the underlying channels. Shareholders respond to weakened litigation rights by providing managers with less risk-taking incentives (vega). Overall, our findings suggest that the shareholder litigation rights are important to debtholders.

Keywords: Shareholder Litigation Right, Universal Demand Law, Cost of Debt, Corporate Governance

JEL Classification: G32, G38, K22

Suggested Citation

Ni, Xiaoran and Yin, Sirui, Shareholder Litigation Rights and the Cost of Debt: Evidence from Derivative Lawsuits (November 1, 2017). Journal of Corporate Finance, Forthcoming; Asian Finance Association (AsianFA) 2017 Conference; 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2826154 or http://dx.doi.org/10.2139/ssrn.2826154

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

D 204, Economics Building
Xiamen, Fujian 361005
China

Xiamen University - School of Economics ( email )

China

Sirui Yin (Contact Author)

Miami University of Ohio ( email )

Oxford, OH 45056
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
251
Abstract Views
983
rank
120,232
PlumX Metrics