Shareholder litigation rights and corporate payout policy: Evidence from universal demand laws

Research in International Business and Finance

41 Pages Posted: 4 Apr 2022

See all articles by Trung K. Do

Trung K. Do

Danang Architecture University

Date Written: April 10, 2021

Abstract

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

Do, Trung K., Shareholder litigation rights and corporate payout policy: Evidence from universal demand laws (April 10, 2021). Research in International Business and Finance, Available at SSRN: https://ssrn.com/abstract=4052565

Trung K. Do (Contact Author)

Danang Architecture University ( email )

Danang
Vietnam

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