Corporate litigation and executive turnover

Joseph Aharony, Chelsea Liu, Alfred Yawson

Research output: Contribution to journalArticlepeer-review

Abstract

We examine executive turnover following environmental, antitrust, intellectual property (IP), and contractual lawsuits filed against their companies. We find that companies' responses to lawsuits depend on the nature of the allegations. In particular, contractual lawsuits are followed by increased turnover of CEOs and inside directors, whereas following environmental and IP lawsuits, only outside directors tend to depart. Antitrust lawsuits are followed by increased appointments of inside directors. We also find that lawsuit merit and pecuniary demands for damages play a role in determining executive turnover. In addition, we find some evidence of reduced CEO compensation following lawsuits. Overall, we provide insights into the effectiveness of the executive labor market in responding to alleged corporate wrongdoing.

Original languageEnglish
Pages (from-to)268-292
Number of pages25
JournalJournal of Corporate Finance
Volume34
DOIs
StatePublished - 1 Oct 2015

Keywords

  • Board of directors
  • Corporate governance
  • Corporate litigation
  • Executive turnover
  • Lawsuits

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