Disloyal Managers and Shareholders’ Wealth
Speaker(s)Eliezer Fich (Drexel University, United States)
LocationTinbergen Institute (Gustav Mahlerplein 117), Room 1.24 (Shanghai)
Date and time
October 23, 2019
12:45 - 14:00
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.
Joint with Jarrad Harford and Anh L. Tran.