Institutional Monitoring and Litigation Risk: Evidence from Employee Disputes

Blake Rayfield and Omer Unsal

No 2019-WP-02, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: In this study, we investigate how institutional investors help mitigate business-related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment lawsuits and that long-term institutional investors are more effective at decreasing employee mistreatment. Our results suggest that institutional investors can improve the employee work environment and help mitigate future employee litigation. The improvement of employee work conditions has been shown to increase a firm’s value through increased employee output, reduced litigation, and direct and indirect costs. Our results shed light on the effectiveness of institutional monitoring on a firm’s litigation risk.

Keywords: Institutional Investors; Litigation; Labor Relations; Firm Value (search for similar items in EconPapers)
JEL-codes: G23 G30 G39 K40 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2019-07
New Economics Papers: this item is included in nep-law
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