Derivative Lawsuits as a Corporate Governance Mechanism: Empirical Evidence on Board Changes Surrounding Filings
Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a great...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2007-03, Vol.42 (1), p.143-165 |
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| container_end_page | 165 |
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| container_title | Journal of financial and quantitative analysis |
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| creator | Ferris, Stephen P. Jandik, Tomas Lawless, Robert M. Makhija, Anil |
| description | Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. These findings suggest that shareholder derivative lawsuits are not frivolous as is often claimed, but rather that they can serve as an effective corporate governance mechanism. |
| doi_str_mv | 10.1017/S0022109000002222 |
| format | Article |
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We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. 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Financ. Quant. Anal</addtitle><date>2007-03-01</date><risdate>2007</risdate><volume>42</volume><issue>1</issue><spage>143</spage><epage>165</epage><pages>143-165</pages><issn>0022-1090</issn><eissn>1756-6916</eissn><abstract>Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. 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| ispartof | Journal of financial and quantitative analysis, 2007-03, Vol.42 (1), p.143-165 |
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| source | EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; Cambridge University Press Journals Complete |
| subjects | Board of directors Boards of directors Business management Business structures Corporate governance Derivative actions Derivatives Duty of care Efficacy Financial management Lawsuits Legal rights Litigation Plaintiffs Senior management Shareholder derivative suits Shareholders Statistical significance Stockholders U.S.A |
| title | Derivative Lawsuits as a Corporate Governance Mechanism: Empirical Evidence on Board Changes Surrounding Filings |
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