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 Bill causes a drop in the valuation of firms incorporated in Nevada. The Bill has significant real effects through the investment channel, leading firms to make more but worse acquisitions and reducing the efficiency of capital expenditures and R&D. Weakening shareholder primacy does not improve how stakeholders are treated, as ESG performance worsens.