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The determinants of IPO-related shareholder litigation: The role of CEO equity incentives and corporate governance

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  • Li, Xingli
  • Pukthuanthong, Kuntara
  • Glenn Walker, Marcus
  • Walker, Thomas John

Abstract

We examine how compensation and corporate governance mechanisms affect the occurrence of securities fraud and related shareholder litigation for initial public offering (IPO) firms. While prior research has focused on seasoned firms, we examine how CEO incentives and corporate governance in IPOs affect the incidence of IPO-related shareholder litigation. We find that the likelihood of securities fraud allegations increases with pre-IPO CEO equity incentives, suggesting a “dark side” to executive equity incentives. The risk of being sued is higher for firms whose boards are dominated by insiders, whose CEOs are older, have shorter tenure, or who founded the firm.

Suggested Citation

  • Li, Xingli & Pukthuanthong, Kuntara & Glenn Walker, Marcus & Walker, Thomas John, 2016. "The determinants of IPO-related shareholder litigation: The role of CEO equity incentives and corporate governance," Journal of Financial Markets, Elsevier, vol. 31(C), pages 81-126.
    • Handle: RePEc:eee:finmar:v:31:y:2016:i:c:p:81-126
    DOI: 10.1016/j.finmar.2016.09.003
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    More about this item

    Keywords

    Initial public offerings; CEO equity incentives; Corporate governance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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