Good Monitoring, Bad Monitoring
Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah
Krannert School of Management; Centre for Economic Policy Research (CEPR)
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 418/2014
Are courts effective monitors of corporate decisions? In a controversial landmark case, the Delaware Supreme Court held directors personally liable for breaching their fiduciary duties, signaling a sharp increase in Delaware’s scrutiny over corporate decisions. In our event study, low-growth Delaware firms outperformed matched non-Delaware firms by 1% in the three day event window. In contrast, high-growth Delaware firms under-performed by 1%. Contrary to previous literature, we conclude that court decisions can have large, significant and heterogeneous effects on firm value, and that rules insulating directors from court scrutiny benefit the fastest growing sectors of the economy.
Number of Pages in PDF File: 72
Keywords: monitoring, corporate governance, case law, regulation
JEL Classification: G32, G34, G38
Date posted: August 7, 2011 ; Last revised: April 30, 2014
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