Stefano Cassella (Tilburg University); Antonino Emanuele Rizzo (Nova SBE)
Resumo (in English only):
Strengthening U.S. shareholders' right to sue a corporation and its executives leads to significant equity value loss. Using exogenous judicial turnover to generate variation in shareholders' right to sue, we establish that only 15% of this loss stems from mechanisms hypothesized by prior literature (e.g., incremental legal expenses for the corporation). Instead, the value reduction is likely due to a worsening of firms' overall governance. Our evidence indicates that worse governance and equity value loss are due to a specific mechanism: stronger shareholders' right to sue impairs the threat of takeovers, and thus reduces the disciplining role of the market.
shareholder litigation, lawsuits, federal courts, judicial ideology, firm value, law and finance, takeover threat, investor protection, deterrence, governance