Shareholder Litigation Rights and Firm Productivity

40 Pages Posted: 20 Sep 2021

See all articles by Alona Bilokha

Alona Bilokha

Fordham University

Sudip Gupta

Johns Hopkins University

Date Written: September 1, 2021

Abstract

This paper analyzes the impacts of decreased shareholder litigation risk on firm productivity. Shareholder litigation provides shareholders a mechanism to enforce rights and mitigate agency conflicts. We use a staggered state-level adoption of universal demand (UD) laws as an exogenous shock that suppressed the number of shareholder derivative lawsuits. We show that the resulting deterioration in corporate governance, coupled with increased managerial attention, had mixed effects on productivity. Adverse effects resulting from lower litigation risk are primarily observed in firms facing financial constraints and low takeover threats. Conversely, firms with incentivized management achieved a higher productivity growth.

Keywords: shareholder litigation, firm productivity, managerial ability, derivative lawsuit

JEL Classification: D20, G18, K10, K20, K40

Suggested Citation

Bilokha, Alona and Gupta, Sudip, Shareholder Litigation Rights and Firm Productivity (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3926241 or http://dx.doi.org/10.2139/ssrn.3926241

Alona Bilokha (Contact Author)

Fordham University ( email )

New York, NY 10023
United States

Sudip Gupta

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

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