Shareholder Lawsuits and CEO Turnover Decisions

Shareholder lawsuits have long prompted intense debate. Despite increased corporate democracy and shareholder rights, some commentators argue that shareholder litigation is still a shareholder’s best option to bring about changes. Shareholder litigation can impose personal liability on corporate managers and directors for breach of the duties of care (negligence) and loyalty (conflict of interest). However, there is a collective action problem associated with shareholder lawsuits, and some argue that the principal beneficiaries of shareholder lawsuits are attorneys.

In a recent study, we move the debate on shareholder lawsuits forward by studying the impact of shareholder litigation threats on CEOs’ employment. … Read more