Thirty Years of Shareholder Rights and Firm Valuation

Abstract:     
This paper introduces a new hand-collected shareholder rights dataset tracking restrictions on shareholder rights at approximately 1,000 firms over 1978-1989. In conjunction with the 1990-2006 IRRC data, we track firms’ shareholder rights over thirty years. Most governance changes occurred during the 1980s. We find a robustly negative association between restrictions on shareholder rights (using the G-Index as a proxy) and Tobin’s Q. The negative association between fewer shareholder rights and firm value only appears after the judicial approval of the poison pill and antitakeover defenses more generally in the landmark Delaware Supreme Court decision of Moran v. Household in 1985. This decision was an unanticipated, exogenous shock to shareholder rights, suggesting a causal impact of shareholder rights on firm valuation.

Number of Pages in PDF File: 56

working papers series