Shareholder litigation rights and ESG controversies: A quasi-natural experiment

Sirimon Treepongkaruna, Khine Kyaw, Pornsit Jiraporn

Research output: Contribution to journalArticlepeer-review

41 Citations (Scopus)

Abstract

Leveraging as a quasi-natural experiment the staggered passage of universal demand laws, which raise the difficulty of shareholder lawsuits, we examine the effect of shareholder litigation rights on ESG controversies. Our difference-in-differences estimates show that an exogenous decline in shareholder litigation risk results in a significant drop in ESG controversies. Specifically, ESG controversies fall by 40.85% in response to an exogenous reduction in litigation risk. When more insulated from shareholder litigation, managers prefer to live a quiet life, intentionally avoiding risky and contentious activities, which require more managerial time and effort. Additional analysis validates the results, including propensity score matching, entropy balancing, and Oster's (2019) testing of coefficient stability. Finally, we find that ESG controversies erode firm profitability considerably, consistent with the theoretical expectations.
Original languageEnglish
Article number102396
JournalInternational Review of Financial Analysis
Volume84
DOIs
Publication statusPublished - Nov 2022

Fingerprint

Dive into the research topics of 'Shareholder litigation rights and ESG controversies: A quasi-natural experiment'. Together they form a unique fingerprint.

Cite this