Shareholder litigation rights and corporate payout policy: Evidence from universal demand laws
Research in International Business and Finance
41 Pages Posted: 4 Apr 2022
Date Written: April 10, 2021
This study exploits the staggered adoption of universal demand (UD) laws, which place significant obstacles to derivative lawsuits and thus, undermine shareholders’ rights by 23 states in the United States (U.S.) from 1989‒2005 as a quasi-natural experiment to examine the effects of shareholder litigation rights on corporate payout policy. Weakened litigation rights for shareholders materially increase firms’ payout ratios. The effect is more pronounced for firms exposed to higher shareholder litigation risk ex-ante, firms with higher institutional holdings, and ones financially unconstrained. Overall, the findings are consistent with lower shareholder litigation threats motivating firms to increase dividend payouts.
Keywords: Derivative lawsuits, Shareholder litigation, Universal demand laws, Dividend payouts, Agency theory
JEL Classification: G30, G35, G38
Suggested Citation: Suggested Citation