How do Legal Standards Matter? An Empirical Study of Special Litigation Committees

Vanderbilt Law Research Paper No. 17-56

Forthcoming, Journal of Corporate Finance

51 Pages Posted: 16 Oct 2017 Last revised: 29 Nov 2019

See all articles by C. N. V. Krishnan

C. N. V. Krishnan

Case Western Reserve University - Department of Banking & Finance

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: October 20, 2019

Abstract

We examine how legal standards affect outcomes in shareholder lawsuits where the defendants create Special Litigation Committees (SLCs). We compile a hand-collected sample of SLC associated lawsuits spanning a 26-year period from Jan 1, 1990 through Dec 31, 2015. We produce extensive descriptive statistics on the utilization, role and effect of SLCs. We find evidence that law matters for SLC outcomes: case dismissals are the lowest in Delaware jurisdiction where the courts apply stricter standards of judicial review. But in states with the weakest legal standards for SLC judicial review, SLC cases are more likely to be dismissed. Defense lawyers appear to exploit these differences to obtain dismissals at a higher rate, potentially impacting shareholder value. Our results have implications for the legal standard of review for SLC cases.

Keywords: SLC, Special Litigation Committee, Lawsuits, Case Dismissal, Case Settlements, High Value Settlements, Delaware courts, Legal Standards, SLC Reports, SLC Report recommending dismissal

JEL Classification: K41, G39

Suggested Citation

Krishnan, C. N. V. and Davidoff Solomon, Steven and Thomas, Randall S., How do Legal Standards Matter? An Empirical Study of Special Litigation Committees (October 20, 2019). Vanderbilt Law Research Paper No. 17-56. Available at SSRN: https://ssrn.com/abstract=3053449 or http://dx.doi.org/10.2139/ssrn.3053449

C. N. V. Krishnan (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
PBL 363
Cleveland, OH 44106-7235
United States
216-368-2116 (Phone)

HOME PAGE: http://weatherhead.case.edu/faculty/c-n-v-krishnan

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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