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Disloyal Managers and Shareholders’ Wealth

Author

Listed:
  • Eliezer M FichLe
  • Jarrad Harford
  • Anh L Tran

Abstract

A duty of loyalty prohibits fiduciaries from appropriating business opportunities from their companies. Starting in 2000, Delaware, followed by several other states, allowed boards to waive their duty. We show that public firms covered by waiver laws invest less in R&D, produce fewer and less valuable patents, and exhibit abnormally high inventor departures. 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. Consistent with the laws’ intent to provide contracting flexibility to emerging firms, we find evidence of positive impacts for small firms.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Eliezer M FichLe & Jarrad Harford & Anh L Tran, 2023. "Disloyal Managers and Shareholders’ Wealth," The Review of Financial Studies, Society for Financial Studies, vol. 36(5), pages 1837-1888.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:5:p:1837-1888.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac070
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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