Events

We examine the effect of shareholder litigation risk on informed trading by corporate insiders, using the staggered adoptions of Universal Demand (UD) laws which substantially raise the hurdle for filing derivative lawsuits. We find that insiders significantly increase opportunistic trades post UD laws. The effect is stronger for insider purchases than for sales. Further analysis shows that the effect is mostly driven by firms with low exposure to other litigation, limited media coverage, and large blockholders who are likely to use shareholder litigation as a governance tool. Overall, our evidence suggests shareholder litigation is effective in curbing opportunistic insider trading.