Shareholder litigation risk and firms’ choice of external growth

Huang, Chenchen, Ozkan, Neslihan and Xu, Fangming (2021) Shareholder litigation risk and firms’ choice of external growth. Journal of Financial and Quantitative Analysis. (In Press)

Record type: Article

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, 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.

Text

Huang et al. JFQA - Accepted Manuscript

Available under License Creative Commons Attribution Non-commercial No Derivatives.

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