Shareholder Litigation Risk and Firms’ Choice of External Growth

Journal of Financial and Quantitative Analysis, Forthcoming

75 Pages Posted: 3 Sep 2021

See all articles by Chenchen Huang

Chenchen Huang

University of Bristol - School of Accounting and Finance

Neslihan Ozkan

University of Bristol - School Accounting and Finance, U.K.

Fangming Xu

University of Bristol

Date Written: September 1, 2021

Abstract

We provide novel evidence showing that shareholder litigation risk influences firms’ choices of external growth strategies. Using staggered adoption of universal demand (UD) laws, we find that firms under the threat of litigation tend to choose corporate alliances over mergers and acquisitions (M&As). This finding supports the view that alliances offer a low-risk, low-cost alternative to M&As for firms facing litigation risk. Moreover, alliance performance improves after the passage of UD laws, suggesting that firms can make better deal selections under reduced litigation threats. Overall, we establish an unexplored link between litigation risk and firms’ choices of boundary-expanding transactions.

Keywords: shareholder litigation, UD laws, corporate alliances, mergers and acquisitions

JEL Classification: G11, G30, G34

Suggested Citation

Huang, Chenchen and Ozkan, Neslihan and Xu, Fangming, Shareholder Litigation Risk and Firms’ Choice of External Growth (September 1, 2021). Journal of Financial and Quantitative Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3915667

Chenchen Huang (Contact Author)

University of Bristol - School of Accounting and Finance

15-19 Tyndalls Park Road
Bristol, BS8 1TU
United Kingdom

Neslihan Ozkan

University of Bristol - School Accounting and Finance, U.K. ( email )

United Kingdom

HOME PAGE: http://https://research-information.bris.ac.uk/en/persons/neslihan-ozkan

Fangming Xu

University of Bristol ( email )

School of Accounting and Finance
Marie Dutordoir
Bristol, BS8 1PQ
United Kingdom
+44(0)1173941503 (Phone)

HOME PAGE: http://https://research-information.bris.ac.uk/en/persons/fangming-xu

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