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Paper Authors: Amnat Admati, Greg Buchak

Corporate law and governance scholarship focuses almost exclusively on agency conflicts between shareholders and managers. Conflicts between managers and other stakeholders—employees, customers, the government, and the public at large—are largely assumed to be addressed by other areas of the law, whereas shareholders are seen as requiring special protections. This paper challenges these assumptions. Using a novel dataset on harms caused by corporations, we show that even among the most newsworthy harms, the US legal system offers redress at significantly higher rate when shareholders are victims as compared to other stakeholder victims. Outcomes are more severe when shareholders are victims, with individual managers being targeted by legal action and sent to prison at a higher rate in those cases relative to when other stakeholders are harmed. Cases where the government itself is the victim also trigger more criminal prosecutions. Our results call into question key assumptions underlying the notion that maximizing shareholder value maximizes social welfare and shed light also on calls for corporations to voluntarily take into account the preferences of non-shareholder stakeholders.

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