The dark side of shareholder litigation: evidence from corporate takeovers

The value effect of shareholder litigation has been controversial. Exploiting the staggered adoption of universal demand (UD) laws by 23 states between 1989 and 2005 as quasi-natural experiments, we show that reduced shareholder litigation threat improves corporate takeover efficiency. Using a difference-in-differences approach, we find that acquirers from states that adopt UD laws experience significantly higher abnormal announcement stock returns. We also document that UD laws are associated with better long-run post-merger operating performances. Taken together, our findings suggest that the threat of shareholder litigation leads to inefficient mergers and acquisitions and therefore destroys value ex ante.

Wednesday’s Faculty Lunch talk is presented by Eddie Zhao, Assistant Professor of Business and Management. All are welcome and encouraged to attend.

Date: Wednesday, February 24, 2016
Time: 12:30 – 1:30 pm
Place: President’s Dining Room


Faculty Lunch Talk poster.Zhao.2.24.16