How do Legal Standards Matter? An Empirical Study of Special Litigation Committees
Forthcoming, Journal of Corporate Finance
51 Pages Posted: 16 Oct 2017 Last revised: 29 Nov 2019
Date Written: October 20, 2019
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: Suggested Citation