The Impact of Investor Protection Law on Corporate Policy: Evidence from the Blue Sky Laws

47 Pages Posted: 28 Jun 2009 Last revised: 31 Aug 2011

Ashwini K. Agrawal

London School of Economics & Political Science (LSE)

Date Written: August 1, 2011

Abstract

Recent studies have debated the impact of investor protection law on corporate behavior and value. I exploit the staggered passage of state securities fraud statutes (“blue sky laws”) in the United States to estimate the causal effects of investor protection law on firm financing decisions and investment activity. The statutes induce firms to increase dividends, issue equity, and grow in size. The laws also facilitate improvements in operating performance and market valuations. Overall, the evidence is strongly supportive of theoretical models that predict investor protection law has a significant impact on corporate policy and performance.

Keywords: Corporate Finance, Corporate Governance, Law, Investor Protection

JEL Classification: G30, G31, G32, G34, G35, G38, G10, G18, G20, G28

Suggested Citation

Agrawal, Ashwini K., The Impact of Investor Protection Law on Corporate Policy: Evidence from the Blue Sky Laws (August 1, 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1442224

Ashwini K. Agrawal (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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