Shareholder Litigation Risk and Firms’ Choice of External Growth

Chenchen Huang, Neslihan Ozkan, Fangming Xu

Research output: Contribution to journalArticlepeer-review

7 Citations (SciVal)
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Abstract

We provide novel evidence showing that shareholder litigation risk influences firms' choices of external growth strategies. Using staggered adoption of universal demand (UD) laws, we find that firms under the threat of litigation tend to choose corporate alliances over mergers and acquisitions (M&As). This finding supports the view that alliances offer a low-risk and low-cost alternative to M&As for firms facing litigation risk. Moreover, alliance performance improves after the passage of UD laws, suggesting that firms can make better deal selections under reduced litigation threats. Overall, we establish an unexplored link between litigation risk and firms' choices of boundary-expanding transactions.

Original languageEnglish
Pages (from-to)574 - 614
Number of pages41
JournalJournal of Financial and Quantitative Analysis
Volume58
Issue number2
Early online date11 Mar 2022
DOIs
Publication statusPublished - 11 Mar 2023

Bibliographical note

Publisher Copyright:
© 2022 The Author(s).

Keywords

  • UD laws
  • corporate alliances
  • mergers and acquisitions
  • shareholder litigation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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