The dark side of shareholder litigation: Evidence from corporate takeovers

Yongqiang Chu; Yijia (Eddie) Zhao

doi:10.1111/fima.12342

journal article Mar 15, 2021

The dark side of shareholder litigation: Evidence from corporate takeovers

Yongqiang Chu Yijia (Eddie) Zhao

Financial Management Vol. 50 No. 3 pp. 845-873 · Wiley

View at Publisher Save 10.1111/fima.12342

Abstract

AbstractExploiting staggered adoption of the universal demand (UD) laws by 23 states between 1989 and 2005 that makes filing shareholder derivative litigations more difficult, we show that reduced litigation threats improve corporate takeover efficiency. Using a difference‐in‐differences approach, we find that acquirers experience higher announcement returns and better postmerger operating performance after the UD laws. Further analysis suggests that acquirers make suboptimal merger decisions to avoid litigation. Taken together, we show that litigation risk can distort managers’ incentives and destroy value ex ante.

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Details

Published: Mar 15, 2021
Vol/Issue: 50(3)
Pages: 845-873
License: View

Authors

Y

Yongqiang Chu

Department of Accounting and Finance, College of Management University of North Carolina at Charlotte, Charlotte North Carolina USA

Y

Yijia (Eddie) Zhao

Department of Finance, College of Management University of Massachusetts Boston Boston Massachusetts USA

Cite This Article

Yongqiang Chu, Yijia (Eddie) Zhao (2021). The dark side of shareholder litigation: Evidence from corporate takeovers. Financial Management, 50(3), 845-873. https://doi.org/10.1111/fima.12342

The dark side of shareholder litigation: Evidence from corporate takeovers

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