Good Monitoring, Bad Monitoring

Good Monitoring, Bad Monitoring

Yaniv Grinstein, Stefano Rossi

Series number :

Serial Number: 

Date posted :

April 01 2014

Last revised :

May 02 2014
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  • monitoring • 
  • Corporate governance • 
  • case law • 
  • regulation

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.