Good Monitoring, Bad Monitoring
Working Paper Author/Authors
Abstract
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, signalling 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.
© Yaniv Grinstein, Stefano Rossi, 2014
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The views expressed are those of the author(s) and do not necessarily reflect those of ECGI or its members.
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