Shareholder Lawsuits and CEO Turnover Decisions
39 Pages Posted: 15 Dec 2020 Last revised: 31 Dec 2020
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: Suggested Citation