Work

Shareholder Litigation Risk and Firms’ Choice of External Growth

Year: 2022

Type: article

Abstract: We provide novel evidence showing that shareholder litigation risk influences firms’ choices of external growth strategies. Using staggered adoption of universal demand (UD) laws, we find that firms under the threat of litigation tend to choose corporate alliances over mergers and acquisitions (M&As). This finding supports the view that alliances offer a low-risk and low-cost alternative to M&As for firms facing litigation risk. Moreover, alliance performance improves after the passage of UD laws, suggesting that firms can make better deal selections under reduced litigation threats. Overall, we establish an unexplored link between litigation risk and firms’ choices of boundary-expanding transactions.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109022000187

Authors: Chenchen Huang, Neslihan Ozkan, Fangming Xu

Institutions: University of Bristol, University of Southampton

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,255