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The Impact of Investor Protection Law on Corporate Policy: Evidence from the Blue Sky Laws

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Author Info
Agrawal, Ashwini K.
Abstract

Recent studies have debated the impact of investor protection laws on firms’ corporate policies. I exploit the passage of state investor protection statutes (“blue sky laws”) in the U.S. in the early 20th century to estimate the effects of investor protection law on firm financing decisions and investment activity. Regression estimates indicate that the passage of investor protection statutes causes firms to pay out greater dividends, issue more equity, and grow in size. The introduction of investor protection law is also associated with improvements in operating performance and market valuations. Additional analysis suggests that alternative hypotheses for the measured changes in corporate policy and performance have limited explanatory power. Overall, the evidence is strongly supportive of theoretical models which predict that investor protection laws have a significant impact on firm financing and investment policy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16351.

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Date of creation: 07 Jul 2009
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Handle: RePEc:pra:mprapa:16351

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Related research
Keywords: Corporate Governance; Investor Protection; Law and Finance; law; finance; empirical corporate finance; financial institutions;

Find related papers by JEL classification:
A1 - General Economics and Teaching - - General Economics
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G0 - Financial Economics - - General
G30 - Financial Economics - - Corporate Finance and Governance - - - General

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  2. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
    Other versions:
  3. Guhan Subramanian, 2004. "The Disappearing Delaware Effect," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 32-59, April.
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  6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
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  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, 02. [Downloadable!] (restricted)
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  13. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
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  14. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2007. "The Economic Consequences of Legal Origins," NBER Working Papers 13608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Raymond Fisman & Inessa Love, 2004. "Financial Development and Intersectoral Allocation: A New Approach," Journal of Finance, American Finance Association, vol. 59(6), pages 2785-2807, December. [Downloadable!] (restricted)
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  17. Mahoney, Paul G, 2003. "The Origins of the Blue-Sky Laws: A Test of Competing Hypotheses," Journal of Law & Economics, University of Chicago Press, vol. 46(1), pages 229-51, April.
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