Shareholder litigation rights, CEO turnover, and board monitoring

We investigate how shareholder litigation rights impact CEO turnover decisions and board oversight. We exploit an unexpected court ruling that increased hurdles for shareholders of Ninth Circuit firms to initiate securities class action lawsuits. After the ruling, the sensitivity of forced CEO turnover to performance decreases for firms in the Ninth Circuit. Additionally, board independence declines and directors of Ninth Circuit firms attend fewer meetings and hold more external board positions after the decision. These effects are exacerbated in firms that lack monitoring from institutional shareholders. For firms dependent on shareholder litigation, the reduction in litigation rights was economically significant and led to a 9.72 % decline in firm value.