What are the Costs of Weakening Shareholder Primacy? Evidence from a U.S. Quasi-Natural Experiment

We study the consequences of weakening shareholder primacy using Nevada Senate Bill 203 as a quasi-natural experiment. A difference-in-differences analysis shows that, instead of improving their governance in response to the Bill to reassure capital providers, affected firms experience a governance deterioration. As a result, the law's adoption causes a drop in the valuation of firms incorporated in Nevada. These firms decrease the performance sensitivity of CEO pay, make more but worse acquisitions, and reduce the efficiency of their capital expenditures and R&D. Reducing shareholder primacy does not improve how stakeholders are treated, as ESG performance worsens.