Shareholder Lawsuits and CEO Turnover Decisions

39 Pages Posted: 15 Dec 2020 Last revised: 31 Dec 2020

See all articles by Rachel M. Hayes

Rachel M. Hayes

University of Utah - David Eccles School of Business

Xiaoxia Peng

University of Utah - David Eccles School of Business

Xue Wang

Ohio State University - Fisher College of Business

Date Written: November 29, 2020

Abstract

We study the effect of shareholder litigation rights on CEO turnover policies using U.S. states’ staggered adoption of Universal Demand laws, which restrict shareholder lawsuits that allege a breach of fiduciary duty by directors or managers. We document that reduced shareholder litigation rights are associated with greater CEO turnover-performance sensitivity, and that this effect is more prominent in firms with existing blockholders and higher ex-ante litigation risk. The empirical evidence suggests a substitute relationship between active monitoring through CEO turnover policies and disciplinary shareholder litigation. Our study contributes to the debate on the role of shareholder litigation in corporate governance.

Keywords: CEO Turnover, Shareholder Litigation

JEL Classification: G34, K22, M41, M51

Suggested Citation

Hayes, Rachel M. and Peng, Xiaoxia and Wang, Xue, Shareholder Lawsuits and CEO Turnover Decisions (November 29, 2020). Available at SSRN: https://ssrn.com/abstract=3739246 or http://dx.doi.org/10.2139/ssrn.3739246

Rachel M. Hayes (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Xiaoxia Peng

University of Utah - David Eccles School of Business ( email )

1655 E Campus Center Dr
Salt Lake City, UT 84112
United States

HOME PAGE: http://www.xiaoxiapeng.com

Xue Wang

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-1330 (Phone)
614-292-2118 (Fax)

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