Good Monitoring, Bad Monitoring
72 Pages Posted: 7 Aug 2011 Last revised: 30 Apr 2014
Date Written: April 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.
Keywords: monitoring, corporate governance, case law, regulation
JEL Classification: G32, G34, G38
Suggested Citation: Suggested Citation