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The purpose of this paper is to review research on litigation in corporate finance.
This paper surveys studies on the estimation of litigation risk, litigation costs, stock reaction to lawsuit announcement, and the effect of litigation on corporate financial policies and outcomes.
The first section presents a survey of studies that estimate litigation risk. The authors then discuss a set of studies that focus on the various costs associated with litigation. The third area of review is about studies which estimate the market reaction to a lawsuit announcement. The next section surveys studies that examine the relation between litigation and a variety of corporate policies, behaviors, and outcomes. The authors then discuss the emerging literature on how corporate political connections can influence the outcome of litigation. The survey concludes with a brief summary and a discussion of suggestions for future research involving corporate litigation.
By providing an extensive review of the literature on litigation in corporate finance, this survey can help researchers to identify recent trends in litigation research and select promising new avenues of investigation in the field.
Because of our limited understanding of the incidence and effect of board busyness globally, the mixed evidence of the effect of board busyness obtained in the USA and the…
Because of our limited understanding of the incidence and effect of board busyness globally, the mixed evidence of the effect of board busyness obtained in the USA and the divergence of international patterns of director busyness from that observed in the USA, the author contends that there is a strong need to examine board busyness from a global perspective. The literature, however, does not examine the effect of board busyness on reported earnings quality and certainly does not analyze it internationally. Consequently, the purpose of this study is to examine the effect of multiple board appointments on the quality of a firm’s reported earnings.
The research design for this study is empirical. It uses both univariate and multivariate statistical analysis to examine historical corporate accounting, finance and governance data.
Consistent with the busyness hypothesis of corporate governance, the author finds that firms with a higher proportion of busy independent directors or busy CEOs manage their earnings more extensively. Further, the findings of this study present that firms with a higher proportion of busy independent audit committee members have poorer financial reporting quality. Using a sample of American Depository Receipts (ADRs), this study determines that the ineffectiveness of busy boards regarding earnings management is mitigated by the listing regulations imposed by US exchanges.
The author believes that this study offers new and important evidence regarding the debate whether busy directors provide knowledge, skill and corporate connections, or whether they are overextended and, thus, unable to fully perform their monitoring duties. This study shows that firms with busy directors are associated with poorer financial reporting quality and, consistent with the busyness hypothesis, are less effective as managerial monitors.
This study provides useful guidance regarding board design and the kinds of policies that firms should adopt regarding multiple boarding.
The social implications focus on the public policy implications regarding the importance of effective corporate governance in the reporting of financial wealth, wealth creation and wealth management.
This is the first study that examines the relation between board/committee busyness and corporate earnings management using a comprehensive set of international firms. Second, the author expands the analysis of audit committee into a new dimension: committee quality as captured by the busyness of its independent members. This study also contributes to the ongoing debate in the corporate finance literature regarding the reputation and busyness hypotheses of multiple directorships.
Purpose – The question of whether the corporate governance practices of firms in diverse countries are converging to those of U.S. firms, and the extent of convergence or…
Purpose – The question of whether the corporate governance practices of firms in diverse countries are converging to those of U.S. firms, and the extent of convergence or divergence, is examined.
Design/methodology/approach – Company level governance measures of board structure and organization, firm audit attributes, antitakeover defenses, and compensation design attributes of international firms are compared with those of U.S. firms.
Findings – We find that the evidence for convergence is more mixed than previously believed, with firms in some nations converging, others essentially static, and a number diverging from U.S. practices. We further determine that country factors such as measures of national economic freedom, increased shareholder rights, and impartial judiciaries help to explain convergence. Greater participation by banks in the national economy is associated with greater divergence from U.S. governance standards. Firm characteristics which are suggestive of a future need for external equity encourage convergence while those which capture the use of leverage or the ability to service additional debt are correlated with greater divergence.
Research limitations/implications – This study suggests that inquiry into whether convergence is occurring might be the wrong question to ask. Rather, our findings suggest that the research focus should be shifted toward an inquiry of what specific areas of governance are converging and in what countries or regions.
Originality/value – This study helps to describe what constitutes effective corporate governance design for firms worldwide. It provides managers with insights on how governance mechanisms can be tailored to reflect local practices and laws.