Shareholder Litigation Risk and Firms’ Choice of External Growth

Chenchen Huang, Neslihan Ozkan, Fangming Xu*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

10 Citations (Scopus)
45 Downloads (Pure)


We provide novel evidence showing that shareholder litigation risk influences firms’ choices of external growth strategies. Using staggered adoption of universal demand (UD) laws, we find that firms under the threat of litigation tend to choose corporate alliances over mergers and acquisitions (M&As). This finding supports the view that alliances offer a low-risk, low-cost alternative to M&As for firms facing litigation risk. Moreover, alliance performance improves after the passage of UD laws, suggesting that firms can make better deal selections under reduced litigation threats. Overall, we establish an unexplored link between litigation risk and firms’ choices of boundary-expanding transactions.
Original languageEnglish
Pages (from-to)574-614
Number of pages41
JournalJournal of Financial and Quantitative Analysis
Issue number2
Early online date2 Mar 2022
Publication statusPublished - 1 Mar 2023

Bibliographical note

Funding Information:
We thank Christopher Baum, Andriy Bodnaruk (the referee), Mark Clatworthy, Eliezer Fich, Jarrad Harford (the editor), Tuan Ho, A. Can Inci, Andrew Karolyi, Elisabeth Kempf, Hyunseob Kim, Kirak Kim, Alberto Manconi, Kasper Meisner Nielsen, Manuela Pedio, and Silvina Rubio, and the conference and seminar participants at the 2019 Financial Management Association (FMA) Annual Meeting, the 2019 European Financial Management Association (EFMA) Annual Meeting, the 2019 Young Finance Scholars conference, and the University of Bristol for their insightful comments and suggestions. All errors are our own.

Publisher Copyright:
© 2022 The Author(s).

Structured keywords

  • AF Corporate Finance


  • shareholder litigation
  • UD laws
  • corporate alliances
  • mergers and acquisitions


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