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Shareholder Litigation and Corporate Social Responsibility

Published online by Cambridge University Press:  08 April 2022

Steven Freund ,
Nam H. Nguyen  and
Hieu V. Phan Open the ORCID record for Hieu V. Phan [Opens in a new window]
Steven Freund
Affiliation:
University of Massachusetts Lowell Manning School of Business [email protected]
Nam H. Nguyen
Affiliation:
University of Texas Rio Grande Valley Vackar College of Business & Entrepreneurship [email protected]
Hieu V. Phan*
Affiliation:
University of Massachusetts Lowell Manning School of Business
*
[email protected] (corresponding author)
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Abstract

This research examines the relation between shareholder litigation and corporate social responsibility (CSR). Exploiting exogenous changes in shareholder litigation rights following the staggered adoption of universal demand laws by U.S. states and the Ninth Circuit Court of Appeals’ ruling on securities class action lawsuits, we show that weaker shareholder litigation rights lead to lower CSR scores. Moreover, the relation is stronger for firms facing higher litigation risk, and a decreased CSR score enhances firm value. Our evidence suggests that firms engage in CSR activities partly to reduce shareholder litigation risk ex ante and mitigate its consequences ex post.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 2 , March 2023 , pp. 512 - 542
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We are especially grateful to Craig Lewis (the referee), whose comments on the paper substantially improved the exposition and analyses. We also appreciate the helpful comments from Paul Malatesta (the editor). Freund and Phan acknowledge a small research grant of the Donahue Center for Business Ethics & Social Responsibility at the University of Massachusetts Lowell. Any opinions expressed are those of the authors and not those of the Donahue Center for Business Ethics & Social Responsibility.

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