Founder-Led Firms and Operational Litigation Risk

Mohammad Hashemi Joo, Edward Lawrence and Yuka Nishikawa

Journal of Behavioral Finance, 2023, vol. 24, issue 2, 183-201

Abstract: This study investigates the relationship between founder-led firms and non-securities (operational) litigation risk. We postulate lower operational litigation risk for founder-led firms than for nonfounder-led firms based on founder-CEOs’ limited agency conflicts and stronger emotional attachment to the firms they establish. Our empirical results suggest that having a founder as CEO mitigates the risk of being involved in operational lawsuits that could result in substantial financial losses and long-lasting negative consequences.

Date: 2023
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DOI: 10.1080/15427560.2021.1949716

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