Regular articleThe determinants of IPO-related shareholder litigation: The role of CEO equity incentives and corporate governance

•We investigate how CEO equity incentives and other corporate governance factors affect the incidence of IPO-related shareholder litigation.•We explore how IPO litigation is affected by a CEO's compensation package, his/her personal traits, and the firm's corporate governance mechanisms that are in place prior to the IPO.•In contrast to other studies that examine executive compensation after the IPO, we focus on compensation before the IPO.•We explore how the determinants of IPO litigation vary across different types of industries and across different types of allegations.

We examine how compensation and corporate governance mechanisms affect the occurrence of securities fraud and related shareholder litigation for initial public offering (IPO) firms. While prior research has focused on seasoned firms, we examine how CEO incentives and corporate governance in IPOs affect the incidence of IPO-related shareholder litigation. We find that the likelihood of securities fraud allegations increases with pre-IPO CEO equity incentives, suggesting a “dark side” to executive equity incentives. The risk of being sued is higher for firms whose boards are dominated by insiders, whose CEOs are older, have shorter tenure, or who founded the firm.