We examine the causal relationship between the block premium and the likelihood of shareholder litigation. On one hand, agency theory suggests that blockholders with greater private benefits, which are proxied by block premium, are more likely to engage in corporate misconduct, thus increasing the likelihood of litigation. On the other hand, since the expected likelihood of litigation at the time of the block trade can be one of the costs of block ownership, greater ex-ante litigation risk may reduce the block premium. We disentangle these two effects between block premium and litigation by employing a simultaneous-equations framework. Using a sample of 593 block trades in the US, we find evidence that greater litigation risk at the time of the block trade lowers block premium, therefore supporting the notion that the expected litigation risk is one of the costs of block ownership. However, we do not find support for the hypothesis that greater private benefits increase the likelihood of future litigation.
JEL classification: G34; K42.
Keywords: agency theory; private benefits; block trades; block premium; class action lawsuits
학회소식
학회소식
[2010년 제 4차] Block Premium and Shareholder Litigation
작성자 : 관리자
조회수 : 989
게시일 :
2010-12-09