Institutional Monitoring and Litigation Risk: Evidence from Employee Disputes
Networks Financial Institute Working Paper Series 2019-WP-02
54 Pages Posted: 2 Aug 2019
Date Written: July 30, 2019
In this study, we investigate how institutional investors help mitigate business-related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment lawsuits and that long-term institutional investors are more effective at decreasing employee mistreatment. Our results suggest that institutional investors can improve the employee work environment and help mitigate future employee litigation. The improvement of employee work conditions has been shown to increase a firm’s value through increased employee output, reduced litigation, and direct and indirect costs. Our results shed light on the effectiveness of institutional monitoring on a firm’s litigation risk.
Keywords: Institutional Investors; Litigation; Labor Relations; Firm Value
JEL Classification: G30, G39, G23, K40
Suggested Citation: Suggested Citation