Shareholder litigation and workplace safety

Abstract

Using the staggered adoption of Universal Demand (UD) laws at the state level that increased the hurdle of shareholder derivative suits as a shock, we find that reduced litigation threat increases workplace injury rates. The effect is more pronounced for treated firms facing higher litigation risk, less product market competition, in low union coverage industries, and with Employee Stock Ownership Plans (ESOPs). Treated firms with high ownership by “dedicated” or local institutional investors are less affected as these investors can monitor safety through voice and exit. Safety inputs fall in treated firms following the adoption of UD laws. Overall, the findings suggest that shareholder litigation threat plays a critical role in workplace safety.