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Institutional Monitoring and Litigation Risk: Evidence from Employee Disputes

Author

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  • Blake Rayfield
  • Omer Unsal
Abstract
In this study, 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 of 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.

Suggested Citation

  • Blake Rayfield & Omer Unsal, 2019. "Institutional Monitoring and Litigation Risk: Evidence from Employee Disputes," NFI Working Papers 2019-WP-02, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2019-wp-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Institutional Investors; Litigation; Labor Relations; Firm Value;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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