Working Paper: CEPR ID: DP9960
Authors: Yaniv Grinstein; Stefano Rossi
Abstract: 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, signaling 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.
Keywords: case law; corporate governance; monitoring; regulation
JEL Codes: G32; G34; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Delaware Supreme Court's ruling in Smith v. Van Gorkom (G34) | Judicial scrutiny (K16) |
| Delaware Supreme Court's ruling in Smith v. Van Gorkom (G34) | Firm value (G32) |
| Judicial scrutiny (K16) | Low-growth Delaware firms' performance (L25) |
| Judicial scrutiny (K16) | High-growth Delaware firms' performance (L25) |
| Judicial scrutiny (K16) | Firm value (G32) |