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

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  • 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.

Suggested Citation

  • Agrawal, Ashwini K., 2009. "The Impact of Investor Protection Law on Corporate Policy: Evidence from the Blue Sky Laws," MPRA Paper 16351, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16351
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    Cited by:

    1. William T. Allen & Han Shen, 2011. "Assessing China's Top-Down Securities Markets," NBER Working Papers 16713, National Bureau of Economic Research, Inc.
    2. William T. Allen & Han Shen, 2012. "Assessing China's Top-Down Securities Markets," NBER Chapters, in: Capitalizing China, pages 149-195, National Bureau of Economic Research, Inc.
    3. Christensen, Hans B. & Hail, Luzi & Leuz, Christian, 2010. "Capital-Market Effects of Securities Regulation: The Role of Implementation and Enforcement," Working Papers 241, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.

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    More about this item

    Keywords

    Corporate Governance; Investor Protection; Law and Finance; law; finance; empirical corporate finance; financial institutions;
    All these keywords.

    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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