When studying for a doctoral degree (PhD), candidates submit a thesis that provides a critical review of the current state of knowledge of the thesis subject as well as the student’s own contributions to the subject. The distinguishing criterion of doctoral graduate research is a significant and original contribution to knowledge.
Once accepted, the candidate presents the thesis orally. This oral exam is open to the public.
When firms seek to curry the favor of politicians, it inevitably leads to political corruption. Political spending totaled US$14.4 Billion in the 2020 US election cycle—and this total does not include dark money donations. Firms naturally never donate to politicians without wanting a return on their investment, so clearly political corruption is a multi-billion-dollar problem in the United States. Recently, a strand of literature examines political corruption in the US from a corporate finance perspective. Another recent strand of finance literature concerns the effects of political ideology on the outcomes of US securities-related shareholder litigation. This thesis aims to first combine and expand upon these two emerging strands of literature by analyzing the relationships of a comprehensive variety of US political and judicial variables with the outcomes of securities fraud and related shareholder litigation. We then extend our framework to a refined exploration of corporate governance as it relates to shareholder litigation.
In the first essay, we study the relationship between a number of political and judicial variables in the United States with the outcomes of litigation for firms that have been sued by their shareholders. Consistent with our hypothesis, we find that a crucial factor in shareholder litigation dismissal has been the passage of the Citizens United v. FEC Supreme Court campaign finance ruling of 2010. Furthermore, we find evidence that political campaign contributions afford firms the requisite connections that will benefit them in current or future lawsuits. Also, we quantify the impact of the size and timing of the political campaign contributions. In addition, we confirm hypotheses that the fate of shareholder class action litigation against these firms is also affected by the political ideologies of some of the trusted authorities who write, administer, and interpret the laws pertinent to firms facing such litigation. These authorities are federal politicians and judges, who are ideally independent arbiters—but the great powers they are given appear to create agency and bias issues, respectively.
In the second essay, we use the knowledge and framework attained from our conclusions from the first essay to examine various corporate governance variables with respect to their role in shareholder litigation outcomes in this new light—variables which can be categorized as board, executive, and firm ownership characteristics. We confirm hypotheses generally based on the principle that variables reflecting better corporate governance will tend to be associated with a higher lawsuit dismissal likelihood. This likelihood tends to increase with a firm’s board of directors who are older, more independent, less busy, and have a larger network size. Furthermore, the likelihood of litigation dismissal increases with greater analyst coverage of the firm, with a firm’s CEO who is older than the board of directors, with greater institutional ownership, and with a larger number of blockholders owning stakes in the firm. As well as finding results consistent with such hypotheses for our corporate governance variables, we also find some novel, unexpected interactions between political variables and corporate governance variables. Whether these interactions are spurious or whether they reflect a deeper connection will remain to be determined by future research.