Shareholder Litigation and Workplace Safety

Abstract

Using the staggered state adoption of Universal Demand (UD) law that lowers shareholder derivative litigation risk to identify the impact of shareholder litigation on workplace safety, we find that weakened shareholder litigation rights compromise workplace safety. The impact is more pronounced for firms with weak governance, in less competitive, low union coverage, or low skilled industries. Furthermore, firms in UD law states exhibit higher COVID-19 exposure, more negative sentiments and greater uncertainty about the impact of COVID-19 on their operations than firms in non-UD law states. Overall, our findings suggest that the threat of shareholder litigation incentivizes corporate officials to invest more in workplace safety.