Shareholder Litigation Rights and Bank Dividends

Posted: 29 Oct 2021

See all articles by Lan Nguyen

Lan Nguyen

VinUniversity

Dung Thuy Thi Nguyen

University of Otago - Department of Accountancy and Finance; Academy of Finance

Date Written: September 15, 2021

Abstract

We utilize the staggered adoption of Universal demand (UD) laws, which significantly reduces the shareholder litigation rights of listed banks incorporated in twenty-three U.S. states during the period from 1989 to 2005, as a quasi-natural experiment to examines the impact that shareholder litigation rights on bank dividends. The result of the difference-in-difference analysis show that weakened shareholder litigation rights leads to an increase in bank dividend. Our results are robust to various sensitivity analyses, falsification tests and events that happened around the time of UD laws adoptions. We further find that the impact of UD laws is more pronounced for banks with greater agency conflicts and higher information asymmetry. However, we find no evidence that litigation rights can affect banks’ share repurchase activities. Overall, our results align with the substitution agency model which argues that dividend payments can be used as a substitute mechanism to reduce the increased conflict between shareholders and managers.

Suggested Citation

Nguyen, Lan and Thuy Thi Nguyen, Dung and Thuy Thi Nguyen, Dung, Shareholder Litigation Rights and Bank Dividends (September 15, 2021). Available at SSRN: https://ssrn.com/abstract=3924086

Lan Nguyen (Contact Author)

VinUniversity ( email )

Hanoi
Vietnam

Dung Thuy Thi Nguyen

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

Academy of Finance ( email )

8 Phan Huy Chu
Phan Chu Trinh Street
Hanoi
Vietnam

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