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Shareholder access to manager‐biased courts and the monitoring/litigation trade‐off
Author(s) -
Stepanov Sergey
Publication year - 2010
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2010.00100.x
Subject(s) - shareholder , opportunism , corporate governance , business , accounting , litigation risk analysis , shareholder loan , law and economics , monetary economics , finance , economics , market economy , audit , non conforming loan , loan , non performing loan
Facilitating access to courts for outside shareholders is often viewed as a remedy against managerial opportunism. My model shows that, when courts are biased toward managers, reducing the barriers to shareholder suits can lower efficiency because it can lead to either excessive litigation or excessive monitoring of managers by shareholders. The latter effect implies that easy shareholder litigation may lead to a greater use of substitute mechanisms of corporate governance rather than more reliance on the judiciary. I also show that easy shareholder access to manager‐biased courts leads to the formation of more, rather than less, concentrated ownership structures.