Using the staggered adoption of universal demand (UD) laws by U.S. states over the period 1997–2010 as a quasi-natural experiment, we examine the impacts of weakened shareholder litigation rights on corporate financial risk management. We find that firms facing reduced litigation threats post-UD law adoption engage in more currency hedging, coupled with decreases in firm value. The increase in risk management is particularly pronounced for firms with higher pre-existing litigation risk, weaker governance structures, and greater managerial entrenchment. Our evidence suggests that diminished shareholder litigation threat incentivizes managers to over-hedge to protect their own interests rather than maximize shareholder value.