The Effects of Litigation Risk on Board Oversight and CEO Incentive Pay

2009 ◽  
Author(s):  
Volker Laux
Keyword(s):  
Incentive Pay ◽  
Litigation Risk

The Impact of Shareholder Litigation Risk on Equity Incentives: Evidence from a Quasi-Natural Experiment

2021 ◽  
Author(s):  
Jingyu Yang ◽  
Yangxin Yu ◽  
Liu Zheng
Keyword(s):  
Financial Reporting ◽  
Incentive Pay ◽  
Litigation Risk ◽  
Ninth Circuit ◽  
Circuit Court ◽  
Court Of Appeals ◽  
Equity Incentives ◽  
The Impact ◽  
Compensation Design ◽  
Powerful Incentive

While prior studies generally support that equity-based compensation induces CEOs to manipulate financial reporting, there is limited direct empirical evidence on whether financial misreporting concerns affect compensation design. A key challenge for establishing a causal relationship is that misreporting incentives and compensation policies are often endogenously determined. Exploiting the exogenous reduction in litigation threat following a 1999 ruling of the U.S. Ninth Circuit Court of Appeals, we examine how heightened misreporting concerns in a less litigious environment affect CEOs' compensation design. Consistent with the theoretical prediction that misreporting concerns prevent companies from providing more powerful incentive pay that is otherwise optimal, we find that firms headquartered in Ninth Circuit states decreased CEOs' equity portfolio vega relative to the control firms after the ruling. We further document that this reduction was concentrated among firms facing greater misreporting concerns post-ruling.

Litigation Risk and the Independent Director Labor Market

2019 ◽  
Author(s):  
Dain C. Donelson ◽  
Elizabeth Tori ◽  
Christopher G. Yust
Keyword(s):  
Labor Market ◽  
Independent Director ◽  
Litigation Risk
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