Shareholder litigation rights and ESG controversies: A quasi-natural experiment

Sirimon Treepongkaruna, Khine Kyaw and Pornsit Jiraporn

International Review of Financial Analysis, 2022, vol. 84, issue C

Abstract: Leveraging as a quasi-natural experiment the staggered passage of universal demand laws, which raise the difficulty of shareholder lawsuits, we examine the effect of shareholder litigation rights on ESG controversies. Our difference-in-differences estimates show that an exogenous decline in shareholder litigation risk results in a significant drop in ESG controversies. Specifically, ESG controversies fall by 40.85% in response to an exogenous reduction in litigation risk. When more insulated from shareholder litigation, managers prefer to live a quiet life, intentionally avoiding risky and contentious activities, which require more managerial time and effort. Additional analysis validates the results, including propensity score matching, entropy balancing, and Oster's (2019) testing of coefficient stability. Finally, we find that ESG controversies erode firm profitability considerably, consistent with the theoretical expectations.

Keywords: ESG controversies; Shareholder litigation rights; Shareholder litigation risk; Quasi-natural experiment; Exogenous shock (search for similar items in EconPapers)
JEL-codes: G32 G34 G38 K22 M14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003465

DOI: 10.1016/j.irfa.2022.102396

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