Shareholder litigation rights and stock price crash risk

We study the impact of shareholder-initiated litigation risk on a firm\u27s stock price crash risk. Our empirical analysis takes advantage of the staggered adoption of universal demand laws, which led to an exogenous decline in derivative litigation risk. We find that a decline in the threat of derivative litigation reduces crash risk and that information hoarding associated with earnings management is a channel through which litigation risk affects crash risk. The relationship is also moderated by how exposed firms are to the other primary form of shareholder litigation, namely securities class-action lawsuits

RAFI replication: easier done than said?

This is a post-peer-review, pre-copyedit version of an article published in The Journal of Asset Management. The definitive publisher-authenticated version Glabadanidis, Paskalis Teodoros; Obaydin, Ivan; Zurbruegg, Ralf, RAFI replication: easier done than said?, The Journal of Asset Management, 2012; 13(3):210-225 is available online at: dx.doi.org/10.1057/jam.2012.7We investigate whether adding fundamental indices to a portfolio provides increased diversification benefits. Our results show that equity investors who care only about portfolio mean and variance will benefit from including a fundamental index in their portfolios. This benefit is especially pronounced during periods of average stock market volatility. We also find that investors can construct a do-it-yourself buy-and-hold replicating portfolio that frequently outperforms the Research Affiliates Fundamental Index®(RAFI®), exchange traded fund out-of-sample.Paskalis Glabadanidis, Ivan Obaydin, Ralf Zurbrueg

The significance of shareholder right limiting provisions during merger waves: an empirical investigation.

The key findings of this dissertation indicate that the benefits and costs associated with shareholder right limiting provisions are time-varying. During merger waves, I find evidence in line with the managerial self-interest hypothesis. This theory argues that managers use shareholder right limiting provisions to facilitate entrenchment and to pursue non-value maximising agendas. The results show that shareholder right limiting provisions significantly reduce the likelihood of receiving a bid and are unlikely to enhance either initial or final offer premiums. The long run performance of poor corporate governance firms, conditional on having successfully defended against an unwanted on-wave takeover bid, is also significantly lower when compared to firms regarded as having strong shareholder rights. Similarly, both announcement period bidder returns and long-run post-acquisition performance is inversely proportional to the number of anti-takeover defences a firm has in place during merger waves. When takeover activity is considered normal, however, these same provisions do not appear to impede the effectiveness of the market for corporate control. They are also no longer related to bidder announcement period returns. These novel findings are largely consistent with the notion that merger waves may foster agency driven behaviour, and therefore, prompt managers to use shareholder right limiting provisions to pursue sub-optimal operating and investment decisions. The additional insights offered by this thesis should be of significant value to both investors and policy makers alike.Thesis (Ph.D.) -- University of Adelaide, Business School, 201

Are Environmental Lawsuits Related to the Cost of Bank Loans?

Purpose – Considering the importance of environmental lawsuits in the capital market specifically and society more generally, the authors examine whether environmental lawsuits are related to the cost of bank loans for the first time.Design/methodology/approach – This study uses a US sample of 7,684 loans from 1,409 individual borrowing firms over the 1995–2015 period. The hypothesis is tested using lagged data from the year before the start of a bank loan, and firm fixed effects panel regression analysis is applied to control for correlated omitted variable bias. To further address endogeneity concerns, the authors use a difference in differences analysis that exploits the Deepwater Horizon oil spill on April 20, 2010, to establish causality. Finally, the authors use the entropy balancing method as an additional endogeneity check.Findings – The authors find a positive relationship between environmental lawsuits and firms' bank loan costs. The results are economically significant. In particular, a one standard deviation increase in environmental lawsuits is related to a 2.07 basis point increase in bank loan costs. The results are robust to various endogeneity checks. Cross-sectional analyses indicate that a poor information environment, weak corporate governance, and low corporate social responsibility (CSR) levels strengthen the positive relationship between environmental lawsuits and bank loan costs. Finally, additional analyses show that environmental lawsuits are significantly negatively related to the loan amount and maturity contract provisions.Originality/value – The authors provide new empirical evidence that increasing understanding of the economic consequences of environmental lawsuits on bank loan costs