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Shareholder litigation rights, CEO turnover, and board monitoring

Author

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  • Yong, Hue Hwa Au
  • Loriot, Blake
  • Merkoulova, Yulia

Abstract

We investigate how shareholder litigation rights impact CEO turnover decisions and board oversight. We exploit an unexpected court ruling that increased hurdles for shareholders of Ninth Circuit firms to initiate securities class action lawsuits. After the ruling, the sensitivity of forced CEO turnover to performance decreases for firms in the Ninth Circuit. Additionally, board independence declines and directors of Ninth Circuit firms attend fewer meetings and hold more external board positions after the decision. These effects are exacerbated in firms that lack monitoring from institutional shareholders. For firms dependent on shareholder litigation, the reduction in litigation rights was economically significant and led to a 9.72 % decline in firm value.

Suggested Citation

  • Yong, Hue Hwa Au & Loriot, Blake & Merkoulova, Yulia, 2025. "Shareholder litigation rights, CEO turnover, and board monitoring," Journal of Corporate Finance, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:corfin:v:95:y:2025:i:c:s0929119925001506
    DOI: 10.1016/j.jcorpfin.2025.102882
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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