Shareholder litigation is important to investor protection and stock market development because it encourages managers to be more transparent. But it also represents a risk to firms and their leaders, who may face allegations of wrongdoings such as breaching their fiduciary duties and violating securities law. Directors’ and officers’ (D&O) liability ... Read More

Executive pay disparity – as when the CEO earns significantly more than the other top managers – has become a red flag issue for investors. Moody’s, for instance, sees high disparity as a credit risk. It can also affect the cost of equity capital, as a study by Zhihong Chen, Yuan Huang and K.C. John Wei has shown. The cost of capital is one of the key ... Read More

Corporate ownership tends to be highly concentrated in countries with weak protection for investors and this has two results. On the one hand, the agency conflict between firm executives and controlling shareholders is minimal, but on the other hand, there is potentially more conflict between minority and controlling shareholders. Since the latter and their ... Read More

In the 1990s, some Chinese state-owned enterprises (SOEs) started providing stock options for directors, following in the footsteps of the US and other countries. The intention was to signal alignment of managerial interests with those of shareholders. But rumours and reports over the years put a question mark over whether these options were bona fide. For ... Read More

Shareholder rights theoretically should lower the cost of capital by reducing overinvestment as well as investors' out-of-pocket monitoring costs and idiosyncratic risk. But evidence of these effects as so far has been mixed and somewhat surprising, suggesting that the predictions may not hold. One of the problems, say Kevin C.W. Chen, Zhihong Chen and K.C ... Read More

The effect of shareholder rights on firm value is a field of growing interest as corporate governance issues grow in importance. The theory states that strong shareholder rights should lower the cost of capital and mitigate over-investment, but the evidence to date has been inconclusive. Now, a new study suggests this may in fact be what is happening. Kevin ... Read More