Can Lax Corporate Law Increase Shareholder Value? Evidence from Nevada

Journal of Law and Economics, 61, no. 4 (2018): 555-605

54 Pages Posted: 7 Nov 2015 Last revised: 19 Jul 2019

See all articles by Ofer Eldar

Ofer Eldar

Duke University School of Law; Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Date Written: September 1, 2018

Abstract

Recent scholarship argues that Nevada’s lax corporate law, which exempts managers from fiduciary duties and discourages takeovers, may harm shareholder wealth. I present evidence that Nevada corporate law does not harm shareholder value for firms that self-select into Nevada, particularly small firms with low institutional shareholding and high insider ownership, and it may in fact enhance the value of these firms. A possible explanation is that Nevada’s pro-managerial laws reduce the likelihood of takeovers and litigation, thereby benefiting a segment of small firms for which the costs of corporate governance may outweigh the benefits.

Keywords: Regulatory competition, Director liability, Takeovers, Shareholder litigation, Corporate Law, Nevada

JEL Classification: K22, G38

Suggested Citation

Eldar, Ofer, Can Lax Corporate Law Increase Shareholder Value? Evidence from Nevada (September 1, 2018). Journal of Law and Economics, 61, no. 4 (2018): 555-605. Available at SSRN: https://ssrn.com/abstract=2685972

Ofer Eldar (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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