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- Title
The dark side of shareholder litigation: Evidence from corporate takeovers.
- Authors
Chu, Yongqiang; Zhao, Yijia
- Abstract
Exploiting staggered adoption of the universal demand (UD) laws by 23 states between 1989 and 2005 that makes filing shareholder derivative litigations more difficult, we show that reduced litigation threats improve corporate takeover efficiency. Using a difference‐in‐differences approach, we find that acquirers experience higher announcement returns and better postmerger operating performance after the UD laws. Further analysis suggests that acquirers make suboptimal merger decisions to avoid litigation. Taken together, we show that litigation risk can distort managers' incentives and destroy value ex ante.
- Subjects
BUYOUTS; INDUSTRIAL efficiency; INCENTIVE (Psychology); ACTIONS &; defenses (Law); STOCKHOLDERS
- Publication
Financial Management (Wiley-Blackwell), 2021, Vol 50, Issue 3, p845
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/fima.12342