TY - JOUR
T1 - Derivative lawsuits as a corporate governance mechanism
T2 - Empirical evidence on board changes surrounding filings
AU - Ferris, Stephen P.
AU - Jandik, Tomas
AU - Lawless, Robert M.
AU - Makhija, Anil
PY - 2007/3
Y1 - 2007/3
N2 - Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. These findings suggest that shareholder derivative lawsuits are not frivolous as is often claimed, but rather that they can serve as an effective corporate governance mechanism. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION.
AB - Legal rights of investors are recognized as an essential component of corporate governance. We assess the efficacy of these rights by examining board changes surrounding the filings of shareholder derivative lawsuits. We find that the incidence of derivative lawsuits is higher for firms with a greater likelihood of agency conflicts. We also find that derivative lawsuits are associated with significant improvements in the boards of directors. In particular, the proportion of outside representation on the board of directors increases. There is also some evidence that other board characteristics change favorably. These findings suggest that shareholder derivative lawsuits are not frivolous as is often claimed, but rather that they can serve as an effective corporate governance mechanism. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION.
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U2 - 10.1017/s0022109000002222
DO - 10.1017/s0022109000002222
M3 - Article
AN - SCOPUS:33947708462
SN - 0022-1090
VL - 42
SP - 143
EP - 166
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 1
ER -