TY - JOUR
T1 - Shareholder litigation rights and ESG controversies
T2 - A quasi-natural experiment
AU - Treepongkaruna, Sirimon
AU - Kyaw, Khine
AU - Jiraporn, Pornsit
N1 - Publisher Copyright:
© 2022 The Authors
PY - 2022/11
Y1 - 2022/11
N2 - 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.
AB - 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.
KW - ESG controversies
KW - Exogenous shock
KW - Quasi-natural experiment
KW - Shareholder litigation rights
KW - Shareholder litigation risk
UR - http://www.scopus.com/inward/record.url?scp=85141871631&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2022.102396
DO - 10.1016/j.irfa.2022.102396
M3 - Article
AN - SCOPUS:85141871631
SN - 1057-5219
VL - 84
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 102396
ER -