How Shareholder Rights Affect Firms’ Financing Decisions

Several decades of research have found that capital structure and financing decisions are influenced not only by market frictions such as taxes and bankruptcy costs but also by conflicts between managers and shareholders. In a new paper, we test whether and to what extent limited rights for shareholders to file derivative lawsuits influence firms’ capital structure and financing decisions.

To examine changes in firms’ capital structure and financing decisions, we exploit the staggered passage of Universal Demand (UD) laws by 23 U.S. states. These laws limit shareholders’ ability to file a derivative lawsuit on behalf of a firm by forcing … Read more