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Shareholder access to manager-biased courts and the monitoring/litigation trade-off

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  • Sergey Stepanov

Abstract

Facilitating access to courts for outside shareholders is often viewed as a remedy against managerial opportunism. My model shows that, when courts are biased toward managers, reducing the barriers to shareholder suits can lower efficiency because it can lead to either excessive litigation or excessive monitoring of managers by shareholders. The latter effect implies that easy shareholder litigation may lead to a greater use of substitute mechanisms of corporate governance rather than more reliance on the judiciary. I also show that easy shareholder access to manager-biased courts leads to the formation of more, rather than less, concentrated ownership structures. Copyright (c) 2010, RAND.

Suggested Citation

  • Sergey Stepanov, 2010. "Shareholder access to manager-biased courts and the monitoring/litigation trade-off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300.
  • Handle: RePEc:bla:randje:v:41:y:2010:i:2:p:270-300
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    References listed on IDEAS

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    Cited by:

    1. Stepanov, Sergey & Suvorov, Anton, 2017. "Agency problem and ownership structure: Outside blockholder as a signal," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 87-107.
    2. Grechenig, Kristoffel & Sekyra, Michael, 2011. "No derivative shareholder suits in Europe: A model of percentage limits and collusion," International Review of Law and Economics, Elsevier, vol. 31(1), pages 16-20, March.

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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