Research Handbook on the Economics of Corporate Law
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Research Handbook on the Economics of Corporate Law

Edited by Claire A. Hill and Brett H. McDonnell

Comprising essays specially commissioned for the volume, leading scholars who have shaped the field of corporate law and governance explore and critique developments in this vibrant and expanding area and offer possible directions for future research.
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Chapter 9: Empirical Studies of Representative Litigation

Randall S. Thomas and Robert B. Thompson


1 Randall S. Thomas and Robert B. Thompson 1. INTRODUCTION Shareholder litigation has long played a prominent role in corporate governance as a check on possible management misconduct. As compared to other possible constraints – markets, private ordering via monitors and incentives, norms, and government regulation, to name a few – shareholder litigation has been used more in the United States than elsewhere. In an economy of public companies with large numbers of shareholders and few large block holders, there have been recurring concerns about the incentives of those who bring such litigation (and their lawyers) and the outcomes that result. From the Wood report in the 1940s to the Private Securities Litigation Reform Act of 1995, legislatures and courts have responded to these concerns with new regulation of such litigation. As empirical work has grown over the last several decades to assume a core position in the study of corporate law, representative shareholder litigation has been a frequent topic. This chapter seeks to explain what empirical studies have told us about representative litigation and how such studies have shaped our understanding of corporate law. 2. OVERVIEW Litigation Embedded Within a Nexus of Managerial Constraints American corporate governance is a combination of state and federal law in a mix that has changed over time (usually in the direction of a greater role for federal law). Understanding the role of litigation in corporate law therefore requires coverage of two sets of laws and the integration of the two as they affect corporations. We...

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