Institutional monitoring and litigation risk: Evidence from employee disputes

Blake Rayfield, Omer Unsal

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

In this article, we investigate how institutional investors help mitigate business-related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment lawsuits and that long-term institutional investors are more effective at decreasing employee mistreatment. Our results suggest that institutional investors can improve the employee work environment and help mitigate future employee litigation. The improvement in employee work conditions has been shown to increase a firm's value through increased employee output, reduced litigation, and direct and indirect costs. Our results shed light on the effectiveness of institutional monitoring on a firm's litigation risk.

Original languageEnglish (US)
Pages (from-to)81-119
Number of pages39
JournalJournal of Financial Research
Volume44
Issue number1
DOIs
StatePublished - Apr 1 2021
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance

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