ABSTRACT
In this paper, we investigate if the perceived name-based ethnicity of CEOs influences the probability of shareholder class-action lawsuits. Using machine learning algorithms on CEO names, we develop an objective proxy of name-based ethnicity and find that, firms managed by ‘foreign-sounding’ CEOs exhibit a lower probability of class-action lawsuits. Our results are robust to matched sample analysis, Heckman two-stage selection, alternate model specifications as well as use of an alternate methodology. We further find that succession of a foreign sounding CEO by a non-foreign-sounding CEO significantly increases the probability of class-action lawsuits. Our paper has important implications for firms, especially in high litigation industries or high litigation situations. Hiring a foreign-sounding CEO can significantly reduce the likelihood of lawsuits and hence, costs associated with lawsuits. However, despite the lower probability of class-action lawsuits, we do not see more firms being managed by foreign sounding CEOs.
Ganji, Gajanan and Kale, Arati and Kale, Devendra, To Sue or Not To Sue (September 30, 2020).
First posted 2021-03-29 11:00:22
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