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Derivative Lawsuits as a Corporate Governance Mechanism: Empirical Evidence on Board Changes Surrounding Filings

Listed author(s):
  • Ferris, Stephen P.
  • Jandik, Tomas
  • Lawless, Robert M.
  • Makhija, Anil
Registered author(s):

    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.

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    File URL: http://journals.cambridge.org/abstract_S0022109000002222
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    Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

    Volume (Year): 42 (2007)
    Issue (Month): 01 (March)
    Pages: 143-165

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    Handle: RePEc:cup:jfinqa:v:42:y:2007:i:01:p:143-165_00
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    Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK

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