Plausibly Exogenous [1160] - Shareholder Litigation (04/06/2023)

LHS Variable
Firm governance and ownership structure

RHS Variable
Threat of shareholder litigation

Source of Exogenous Variation
In 1999, the Ninth Circuit Court of Appeals issued a ruling that reduced access to the class action mechanism, effectively decreasing the ability of small investors to sue management. The ruling disproportionately affected firms headquartered in the Ninth Circuit. This decision resulted in a 43% drop in the number class action suits in the Ninth Circuit relative to a 14% increase across other circuits.

- Crane and Koch (2018), “Shareholder Litigation and Ownership Structure: Evidence from a Natural Experiment.”