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Title: Good Monitoring, Bad Monitoring

Author(s): Yaniv Grinstein and Stefano Rossi

Publication Date: May 2014

Keyword(s): case law, corporate governance, monitoring and regulation

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Grinstein, Y and Rossi, S. 2014. 'Good Monitoring, Bad Monitoring'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9960