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
Date Written: September 1, 2018
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: Suggested Citation