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United we stand, divided we fall: The impact of top management team stability on corporate litigation

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  • Bu, Jun
  • Fei, Tianlun
  • Zhou, Futong

Abstract

Escalating commercial litigation in emerging markets arouses growing concerns for listed companies, while certain corporate governance practices are proved to be effective in curbing litigation risks. Using panel data from China’s A-share listed companies, we demonstrate that a stable top management team is a cornerstone in reducing a firm’s exposure to litigation risk. We find that this inhibitory effect is achieved by mitigating agency problems, strengthening internal controls, and cultivating firm-specific human capital. Further analyses reveal that this effect is more pronounced when TMTs have more company ownership, exhibit stronger managerial discretion, and maintain a higher proportion of female executives, or when they experience greater environmental uncertainty. Additionally, a strong legal environment and institutional monitoring can both serve as substitutes for top management team stability in reducing corporate litigation risk. Our study contributes to the literature by providing empirical evidence of the positive impact of top management team stability on corporate risk management.

Suggested Citation

  • Bu, Jun & Fei, Tianlun & Zhou, Futong, 2024. "United we stand, divided we fall: The impact of top management team stability on corporate litigation," International Review of Financial Analysis, Elsevier, vol. 96(PB).
  • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006082
    DOI: 10.1016/j.irfa.2024.103676
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    More about this item

    Keywords

    Top management team; Stability; Litigation risk; Emerging market; China;
    All these keywords.

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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