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How do legal standards matter? An empirical study of special litigation committees

Author

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  • Krishnan, C.N.V.
  • Solomon, Steven Davidoff
  • Thomas, Randall S.

Abstract

We examine how legal standards affect outcomes in shareholder lawsuits where the defendants create Special Litigation Committees (SLCs). We compile a hand-collected sample of SLC associated lawsuits spanning a 26-year period from Jan 1, 1990 through Dec 31, 2015. We produce extensive descriptive statistics on the utilization, role and effect of SLCs. We find evidence that law matters for SLC outcomes: case dismissals are the lowest in Delaware jurisdiction where the courts apply stricter standards of judicial review. But in states with the weakest legal standards for SLC judicial review, SLC cases are more likely to be dismissed. Defense lawyers appear to exploit these differences to obtain dismissals at a higher rate, potentially impacting shareholder value. Our results have implications for the legal standard of review for SLC cases.

Suggested Citation

  • Krishnan, C.N.V. & Solomon, Steven Davidoff & Thomas, Randall S., 2020. "How do legal standards matter? An empirical study of special litigation committees," Journal of Corporate Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:corfin:v:60:y:2020:i:c:s092911991930207x
    DOI: 10.1016/j.jcorpfin.2019.101543
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    References listed on IDEAS

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    1. Daniel Klerman & Yoon-Ho Alex Lee, 2014. "Inferences from Litigated Cases," The Journal of Legal Studies, University of Chicago Press, vol. 43(2), pages 209-248.
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    3. Eric Helland & Daniel Klerman & Yoon-Ho Alex Lee, 2018. "Maybe there Is No Bias in the Selection of Disputes for Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(1), pages 143-170, March.
    4. Lee, Yoon-Ho Alex & Klerman, Daniel, 2016. "The Priest-Klein hypotheses: Proofs and generality," International Review of Law and Economics, Elsevier, vol. 48(C), pages 59-76.
    5. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
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