Shareholder litigation rights and corporate acquisitions

Chune Young Chung, Incheol Kim, Monika K. Rabarison, Thomas To and Eliza Wu

Journal of Corporate Finance, 2020, vol. 62, issue C

Abstract: We examine the effect of shareholder litigation rights on managers' acquisition decisions. Our experimental design exploits a U.S. Ninth Circuit Court of Appeals ruling on July 2, 1999 that resulted in a reduction in shareholder class actions. We find that, since the ruling, firms in Ninth Circuit states acquire larger targets. Furthermore, acquirers' returns are lower in these states, especially for those with weaker corporate governance. Further analysis shows that value destruction is the result of managers' freedom to conduct empire-building acquisitions using overvalued equity. Overall, our findings indicate the importance of shareholder litigation as an external governance mechanism.

Keywords: Shareholder litigation; Corporate governance; Corporate acquisitions (search for similar items in EconPapers)
JEL-codes: G34 K22 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:62:y:2020:i:c:s0929119920300432

DOI: 10.1016/j.jcorpfin.2020.101599

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