Institutional Ownership And Corporate Litigation Risk

With the continuous improvement of China's capital market and legal environment,judicial intervention based on law has been widely adopted,which is reflected,specifically,from the increasing number of lawsuits involving listed companies and money involved.According to statistics from the Wind database,in 2017,there were 1341 lawsuits involved 515 A-share listed companies,moreover 92 lawsuits involved more than 100 million RMB among them,and more than 48.293 billion RMB.These companies sued will not only face high cost for safeguarding their rights,lower reputation,and damage the operating environment for products;but also it may decrease market share,downgrade credit rating,increase financing difficulties,interrupt supply chain,and so on,which will decrease the corporate performance and seriously damage the interests of stakeholders.Therefore,it is necessary to explore how to inhibit the risk of corporate litigation.As an important role in the capital market,institutional investors have obvious advantages in terms of shareholding scale and information acquisition,and so institutional investors also have the motivation and ability to supervise the management of target companies to improve the level of governance.Some existing researches based on the effective supervision theory of institutional investors also show that a higher level of governance can improve the quality of information disclosure,reduce internal control defects,and so on.Obviously,institutional investors' shareholding may also inhibit the litigation risk of companies,but there is little literature studying the impact of institutional investors on corporate litigation risk.Therefore,an important topic of this paper is to empirically test whether institutional investors can restrain the risk of corporate litigation.In addition,since different institutional investors have different shareholding motivations and shareholding ratios,which directly affects their motivation and willingness to participate in corporate governance,so different types of institutional investors also have different impacts on corporate governance,which has been confirmed by many previous studies.Therefore,another research focus is to investigate the differences of the influence different types of institutional investors' shareholding on the risk of corporate litigation from the perspectives of institutional investors' independence and shareholding duration.Based on the data of A-share listed companies in Shanghai and Shenzhen from 2003 to 2017,this paper examines the influence of institutional ownership on corporate litigation risk,and further examining the difference of the influence of heterogeneous institutional investors' shareholding on corporate litigation risk from the two aspects:institutional investors' independence and shareholding duration.The results show that:(1)on the whole,institutional investors' shareholding significantly inhibits the risk of corporate litigation,and the higher the shareholding ratio,the lower the risk of litigation;(2)compared with non-independent institutional investors,shareholding of independent institutional investors has a more significant inhibitory effect on corporate litigation risk;(3)compared with short-term institutional investors,long-term institutional investors' shareholding has a more significant inhibiting effect on corporate litigation risk.This paper provides a new approach for the risk management of enterprise litigation,and also proves the positive role of institutional investors in corporate governance from the perspective of the risk management of companies,which is of certain significance for improving corporate governance.