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Shareholder litigation rights and the cost of debt: Evidence from derivative lawsuits

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  • Ni, Xiaoran
  • Yin, Sirui

Abstract

Exploiting the staggered adoption of universal demand (UD) laws as exogenous shocks to filing derivative lawsuits, we find that weakened shareholder litigation rights cause a significant increase in the cost of debt. Deteriorated corporate governance, increased information asymmetry, and heightened managerial risk-taking are the underlying channels. Shareholders respond to weakened litigation rights by providing managers with less risk-taking incentives. Overall, our findings suggest that the shareholder litigation rights are important to debtholders.

Suggested Citation

  • Ni, Xiaoran & Yin, Sirui, 2018. "Shareholder litigation rights and the cost of debt: Evidence from derivative lawsuits," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 169-186.
    • Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:169-186
    DOI: 10.1016/j.jcorpfin.2017.10.008
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    More about this item

    Keywords

    Shareholder litigation right; Universal demand law; Cost of debt; Corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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