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Shareholder litigation risk and firms’ choice of external growth

Shareholder litigation risk and firms’ choice of external growth
Shareholder litigation risk and firms’ choice of external growth
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.
0022-1090
Huang, Chenchen
f25e3d31-93c0-4043-8f12-3784f6a08e0c
Ozkan, Neslihan
ca73cd4f-dada-4046-a662-a63f77fb67ae
Xu, Fangming
afe16bf5-2aea-4aba-aefb-9af61a855001
Huang, Chenchen
f25e3d31-93c0-4043-8f12-3784f6a08e0c
Ozkan, Neslihan
ca73cd4f-dada-4046-a662-a63f77fb67ae
Xu, Fangming
afe16bf5-2aea-4aba-aefb-9af61a855001

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.

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Huang et al. JFQA - Accepted Manuscript
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More information

Accepted/In Press date: 1 September 2021

Identifiers

Local EPrints ID: 451542
URI: http://eprints.soton.ac.uk/id/eprint/451542
ISSN: 0022-1090
PURE UUID: b21c920f-9a8b-4f82-b00b-5cb906c0b3d2
ORCID for Chenchen Huang: ORCID iD orcid.org/0000-0001-6898-8340

Catalogue record

Date deposited: 06 Oct 2021 19:12
Last modified: 11 Jun 2022 01:56

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Contributors

Author: Chenchen Huang ORCID iD
Author: Neslihan Ozkan
Author: Fangming Xu

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