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What are the Costs of Weakening Shareholder Primacy? Evidence from a U.S. Quasi-Natural Experiment

Author

Listed:
  • Benjamin Bennett
  • René M. Stulz
  • Zexi Wang

Abstract

We study the economic consequences of weakening shareholder primacy using Nevada Senate Bill 203 as a quasi-natural experiment. A difference-in-differences analysis shows that affected Nevada firms experienced a decline in firm value of more than 4%, as measured by Tobin’s q. Rather than responding with stronger governance to reassure capital providers, affected firms worsen their governance. We document significant real effects through the investment channel: treated firms undertake worse acquisitions and exhibit reduced efficiency in both capital expenditures and R&D spending. Furthermore, weakening shareholder primacy does not improve how stakeholders are treated, as environmental and social performance worsen.

Suggested Citation

  • Benjamin Bennett & René M. Stulz & Zexi Wang, 2025. "What are the Costs of Weakening Shareholder Primacy? Evidence from a U.S. Quasi-Natural Experiment," NBER Working Papers 33828, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33828
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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