Shareholder Access to Manager-Biased Courts and the Monitoring/Litigation Tradeoff
Sergey Stepanov ()
No w0106, Working Papers from Center for Economic and Financial Research (CEFIR)
Adequate access to courts by minority shareholders is commonly viewed as an important element of a good corporate governance system. Should shareholders be provided with easy access to courts when judges are unlikely to punish opportunistic managers? It might seem that having an extra instrument of protection is always better as long as it provides some protection against managerial self-dealing. We present a model, which shows that facilitating shareholder litigation in a system where courts are biased towards managers can actually lower efficiency, as it can lead to either excessive litigation or excessive monitoring of managers by shareholders. The latter effect arises when litigation is very costly for the firm, but cheap for an individual shareholder. In this case, easy litigation does not lead to a greater reliance on the judiciary and results in more, rather than less, concentrated ownership. This is the effect of the optimal adjustment of the ownership structure to an increase in shareholders’ willingness to bring suits when courts are manager-biased. Our model implies that removing impediments to shareholder litigation in countries where courts are reluctant to protect shareholders may increase the cost of corporate governance there.
Keywords: corporate governance; shareholder protection; shareholder litigation; monitoring; biased courts (search for similar items in EconPapers)
JEL-codes: G32 G34 K41 (search for similar items in EconPapers)
Pages: 35 pages
New Economics Papers: this item is included in nep-cfn and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Shareholder access to manager‐biased courts and the monitoring/litigation trade‐off (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cfr:cefirw:w0106
Access Statistics for this paper
More papers in Working Papers from Center for Economic and Financial Research (CEFIR) Contact information at EDIRC.
Bibliographic data for series maintained by Julia Babich ().