The need to validate exogenous shocks: Shareholder derivative litigation, universal demand laws and firm behavior

Dain Donelson (), Laura Kettell, John McInnis and Sara Toynbee

Journal of Accounting and Economics, 2022, vol. 73, issue 1

Abstract: Several recent studies argue that the adoption of universal demand (UD) laws represent an exogenous decline in litigation risk by increasing the procedural hurdles associated with shareholder derivative litigation. This study examines how UD laws affect the incidence of derivative litigation risk and related decisions. We show that the adoption of UD laws had no meaningful impact on derivative litigation from 1996 to 2015. We also find no evidence that UD laws affect aggressive accounting, voluntary disclosure, executive compensation, or corporate governance decisions. Collectively, our findings cast doubt on the validity of using UD laws as an exogenous shock to litigation risk.

Keywords: Derivative litigation; Universal demand; Litigation risk; Financial reporting; Compensation; Corporate governance (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:73:y:2022:i:1:s0165410121000422

DOI: 10.1016/j.jacceco.2021.101427

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