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Disloyal Managers and Shareholders' Wealth

  • Series
    Erasmus Finance Seminars
  • Speaker(s)
    Eliezer Fich (Drexel University, United States)
  • Field
  • Location
    Erasmus University, Polak Building, Room 3-14
  • Date and time

    October 22, 2019
    15:30 - 16:45


The prohibition against fiduciaries appropriating business opportunities from their companies is a fundamental part of the duty of loyalty, the expectation of which is integral to U.S. corporate governance. However, starting in 2000, several states, including Delaware, allowed boards to waive this duty. Exploiting the staggered passage of waiver laws, we show that this weakening of fiduciary duty has significantly decreased firms’ investment in innovation. Firms covered by waiver laws invest less in R&D, produce fewer and less valuable patents. Remaining innovation activities contribute less to firm value, a fact confirmed by the market reaction when firms reveal their curtailed internal growth opportunities by announcing acquisitions