Shareholder litigation rights and corporate payout policy: Evidence from universal demand laws

Trung Do

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: This study exploits the staggered adoption of universal demand (UD) laws, which place significant obstacles to derivative lawsuits and thus, undermine shareholders’ rights by 23 states in the United States (U.S.) from 1989 to 2005 as a quasi-natural experiment to examine the effects of shareholder litigation rights on corporate payout policy. Weakened litigation rights for shareholders materially increase firms’ payout ratios. The effect is more pronounced for firms exposed to higher shareholder litigation risk ex-ante, firms with higher institutional holdings, and ones financially unconstrained. Overall, the findings are consistent with lower shareholder litigation threats motivating firms to increase dividend payouts.

Keywords: Derivative lawsuits; Shareholder litigation; Universal demand laws; Dividend payouts; Agency theory (search for similar items in EconPapers)
JEL-codes: G30 G35 G38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000611

DOI: 10.1016/j.ribaf.2021.101440

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