Just Friends? Managers' Connections to Judges

51 Pages Posted: 26 Jun 2024

See all articles by Sterling Huang

Sterling Huang

New York University (NYU) - New York University (NYU), Shanghai

Sugata Roychowdhury

Northwestern University Kellogg School of Management

Ewa Sletten

The Ohio State University

Yanping Xu

Sun Yat-sen University (SYSU)

Date Written: June 18, 2024

Abstract

We study the impact of social connections between judges and executives on the outcomes of Securities Class Action Litigation (SCAL). Judges who are socially connected to a firm's executives are significantly more likely to dismiss lawsuits against the firm. There is also evidence of faster resolution and lower payout amounts in connected cases. The favorable outcomes cannot be explained by the lower severity of connected cases, or by court, judge, or firm characteristics. Our results are more pronounced when executives connected to the judge are named defendants in the lawsuits, when connected cases involve less visible lawsuits or firms, and when connections between judges and executives are likely more direct. Our evidence indicates that social connections influence judge impartiality and meaningfully alter SCAL outcomes.

Keywords: social connections, litigation, security class action, judge biases, financial reporting, disclosure

JEL Classification: G39, K22, K41, K42, M49, M59, P48

Suggested Citation

Huang, Sterling and Roychowdhury, Sugata and Sletten, Ewa and Xu, Yanping, Just Friends? Managers' Connections to Judges (June 18, 2024). Available at SSRN: https://ssrn.com/abstract=4872160 or http://dx.doi.org/10.2139/ssrn.4872160

Sterling Huang

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Shanghai, Shanghai 200122
China

Sugata Roychowdhury

Northwestern University Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL IL 60208
United States
60208 (Fax)

HOME PAGE: http://https://www.kellogg.northwestern.edu/faculty/directory/roychowdhury_sugata.aspx

Ewa Sletten

The Ohio State University ( email )

Fisher Hall
2100 Neil Avenue
Columbus, OH 43210
United States
6142922451 (Phone)

Yanping Xu (Contact Author)

Sun Yat-sen University (SYSU) ( email )

66, Gongchang Road
Guangming District
Shenzhen, Guangdong 518107
China

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