We investigate how shareholder litigation rights impact CEO turnover decisions and board oversight. We exploit an unexpected court ruling that increased hurdles for shareholders of Ninth Circuit firms to initiate securities class action lawsuits. After the ruling, the sensitivity of forced CEO turnover to performance decreases for firms in the Ninth Circuit. Additionally, board independence declines and directors of Ninth Circuit firms attend fewer meetings and hold more external board positions after the decision. These effects are exacerbated in firms that lack monitoring from institutional shareholders. For firms dependent on shareholder litigation, the reduction in litigation rights was economically significant and led to a 9.72 % decline in firm value.

We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82% of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors' responses also support pecking order and market timing theories. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Overall, our findings suggest a first-order impact of investor preferences on capital structure decisions.