Abstract:

Taking advantage of a quasi-natural experiment based on a distinctive ruling by the Ninth Circuit Court of Appeals, we examine how shareholder litigation rights influence asset redeployability, which is a critical aspect of sustainability that has surprisingly garnered limited attention in the existing literature. Our difference-in-difference estimates demonstrate that an exogenous reduction in shareholder litigation rights reduces asset redeployability considerably. Specially, an unanticipated drop in litigation risk results in a 4.66% decline in asset redeployability. More redeployable assets are typically viewed as less risky owing to their multiple uses. Risk-averse managers are willing to tolerate more risk in terms of lower asset redeployability when they are more insulated from litigation risk. Apparently, managers delicately trade off the risk in one area for another, resulting in a substitution effect. Further analysis corroborates the findings, i.e., propensity score matching, entropy balancing, and Oster’s (2019) testing for coefficient stability. Our identification strategy relies on a quasi-natural experiment and is thus more likely to reveal a causal effect, rather than a mere association.

Keywords:

Shareholder litigation, litigation risk, Ninth Circuit, redeployable assets, asset redeployability, sustainability.

JEL Classification:

K41, G34, G31.

How to Cite:

Thunyanee Pothisarn, Pandej Chintrakarn, Pattanaporn Chatjuthamard and Pornsit Jiraporn. Shareholder Litigation Risk, Managerial Risk Aversion, Redeployable Assets, and Sustainability: A Quasi-natural Experiment. [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a246/