Shareholder Litigation and Workplace Safety

Abstract

We examine how shareholder litigation affects workplace safety. To identify a causal impact, we exploit the staggered adoption of Universal Demand (UD) laws by U.S. states, which lowers shareholder derivative litigation risk. Using establishment-level injury data and a Covid-19 exposure dataset in the U.S., 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 incorporated in UD law states exhibit higher Covid-19 exposure, more negative sentiments and greater uncertainty about the impact of the virus on their operations than firms incorporated in non-UD law states. Overall, our findings suggest that the threat of shareholder litigation incentivizes corporate officials to invest more in workplace safety. This conclusion has timely policy implications for Covid-19 safety at workplaces.